Fourth, other countries will start to use “national security” exceptions to block imports of all sorts. Here is the real danger of Trump’s policy. Once the major players in the system start to undermine the key norms of behavior, it opens the door for everyone to misbehave. Finally, by imposing such high tariffs on key items in the economy, Trump has successfully raised costs for products across the board inside the United States. This may appear to be a problem only for US consumers and firms. Given the tight integration of supply chains, however, Trump’s tariffs might actually affect global firms and citizens in completely unrelated places. Parts and components, for example, may become 25% more expensive with no quick or easy solution for replacement in the short run. Thus, what at first may seem to be a purely domestic issue—the imposition of tariffs on steel and aluminum against China inside the United States—is going to have global implications. The world should not view this threat lightly. The escalation of challenges to the global trade system appears to have begun.
Viewing Steel As an Example of "America First"
Moreover if the US tries to justify a broad-based tariff or quota for all steel products on the grounds of 'national security,' it will embolden other countries to use the same justification on other categories of products leading to retaliation. Restrictive unilateral actions will not provide lasting solutions either. In short, labelling steel imports as a national security threat is neither necessary nor supportable by the facts. President Trump could take more moderate actions that may be enough to claim political victory while avoiding retaliation from global trading partners. But such a rational decision may not be so likely.
Living with American Uncertainty
The NAFTA negotiations have implications for Canada beyond simply the talks in Washington. If the United States is no longer a reliable partner, then Canada needs to start thinking about a different approach. It needs to think about this now and it needs to do so quickly. Canadian officials appear to have adopted a similar strategy to many other countries. First, they have tried to figure out what the US is likely to want. They have dispatched various delegations to DC to have conversations with the President and others. Second, they have started discussions with other countries. For Canada, this means starting negotiations with China on a free trade agreement. These talks will likely take time to conclude, hence the urgency in beginning now.
How Much Change Is Coming From Washington On Trade?
At least some of incoming Trump team—to repeat again—believe the US is already engaged in a trade war. They want manufacturing to take place inside the United States and will do whatever they think it takes to make it so. Many of the key players seem to be stuck in the 1980s and are pulling out the playbook from that era when the United States could dictate terms and insist on mechanisms like voluntary export restraints. The retaliation this time around will be different. The coming year is going to be very challenging for firms. Trump is not going to change his mind on trade. He really means business.