Love import tariffs or hate them, you should expect more of them, says Robert Zoellick, an economic adviser to each of the three Republican presidents who preceded President Trump.
Duties of 25 percent on steel and 10 percent on aluminum that the White House announced this week follow earlier tariffs on washing machines and solar panels, and levies may be imposed next on Chinese imports, Zoellick said Friday during a panel discussion at the Brussels Forum.
“The core point in trying to understand what the administration is doing,” he said, is that Trump, Commerce Secretary Wilbur Ross, and U.S. Trade Representative Robert Lighthizer have long believed that trade deficits “are like negative net income for a businessperson. It’s losing.”
Facing an imbalance between exports and imports that grew to $568.4 billion last year, the administration “is trying to change the outcome and adjusting the rules to achieve that,” said Zoellick, the nonexecutive chairman at Alliance Bernstein and a previous head of the World Bank and executive at Goldman Sachs.
“It’s fundamentally different than the way trade negotiations have worked in the past, where you try to have fair rules for competition and, frankly, trade balances depend on other factors,” he added.
The bottom line?
“Expect more,” Zoellick said. “It depends somewhat on the blowback they get,” but the underlying ideology, tied to Trump’s political base of conservative blue-collar workers, suggests “that this is the first shot of what we’re going to see is an increasing volley.”
The extent of the backlash to Trump’s protectionist policies remains to be seen. Congressional Republicans and corporate executives have already panned the latest tariffs, cautioning that they may undermine economic growth from tax cuts approved late last year.
In response, the president has agreed to exempt Canada and Mexico from the metals duties, pending renegotiation of the North American Free Trade Agreement, and consider other exemptions on a case-by-case basis. European Union officials have already said they will seek one.
“We are counting on being excluded,” Cecilia Malmstrom, trade commissioner for the European Commission, said Friday. If the alliance isn’t, it will contest the tariffs before the World Trade Organization and consider adding duties to U.S. goods.
“We hope that will not be the case, of course, because nobody has an interest in escalating this situation, but if we have to do that, that is what we will do,” she said.
Her comments illustrate the concerns of U.S. economists that the metals tariffs, comparatively small in themselves, could spark a damaging international trade war.
Not only would that push up prices, it could hurt consumer confidence in the U.S., whose $20 trillion economy is driven by consumer spending.
“That would have a ripple effect,” said Humberto Garcia, head of asset allocation for Bank Leumi USA. “A lot of what has pushed up valuations over the past year in equity markets has been optimism about the future.”
