President Trump's trade policy is backfiring
Note: The following is an edited translation of a commentary on the U.S.-initiated trade dispute from the Chinese-language "Commentaries on International Affairs (國際銳評)"
U.S. President Donald Trump turned a blind eye to repeated warnings from China, Canada, and the European Union that a trade war has no winners. Now he has to face the bitter reality that, instead of standing with him, the American manufacturers he has been vowing to protect are turning away from him.
Luxury American motorcycle manufacturer Harley-Davidson announced that it is moving more of its production overseas. The company said this was because of cost increases resulting from the European Union's retaliatory tariffs against the Trump administration's tariffs on European steel and aluminum.
The whole world witnessed President Trump's anger following Harley's announcement. On Twitter, he described the move as a surrender, threatening that Harley will be "taxed like never before" if it goes ahead with the plan.
In President Trump's eyes, the manufacturing industry in the United States was likely a vital contributor to his election victory in 2016. His tax reform bill and his tariffs against America's trading partners, after all, are aimed primarily at benefiting domestic manufacturers and fulfilling his campaign promise of "bringing manufacturing jobs back to America". President Trump would seem to believe that his trade war tactics would win him support from signature manufacturers like Harley.
But President Trump appears to have forgotten the basic rule that businesses are pragmatic. Harley-Davidson, one of the main targets of the European Union's retaliatory tariffs, has seen its import duties to that trading bloc surge from 6 percent to 31 percent. This leads to a price hike of 2,200 U.S. dollars for each motorcycle it sells to its customers in the European Union. This is hurting the company's sales in that market, which accounts for 17 percent of its global sales. Harley's declining sales in the United States make it almost impossible for the home market to compensate for its potential losses in Europe. Therefore, it is inevitable that part of its production would be moved overseas to avoid the duties.
The so-called surrender of Harley will not be an isolated case. As retaliatory tariffs on American goods are imposed by the European Union, China, India, Turkey and Mexico, more and more of the country's manufacturers are likely to follow suit and move overseas. Of course, President Trump could tax companies that choose to do so "like never before", but he would only end up destroying business and investment confidence in his own country.
And the Trump administration is apparently casting shadows on investment, employment, consumption, and capital market sentiment around the world. Ports and airports are seeing a slowdown in the shipment of goods. The United States is experiencing price hikes for raw materials like steel and aluminum. American agricultural products are losing their overseas markets. In Germany, factory orders are weakening. The U.S. Federal Reserve chief Jerome Powell has said some companies in the United States are telling the central bank that they are holding off on investing and hiring because of the Trump administration's trade policies. And a new report from the Bank of International Settlements is warning that the economic gains of last year could be undone by rising protectionism.
It is unlikely that President Trump is not aware that his trade policy could have negative consequences. But the consequences are being realized much faster than he expected. Rarely beaten in business negotiations as a real estate mogul, President Trump obviously believes that he could use his negotiation tactics of the past in trade talks with other countries. However, trade among sovereign states is fundamentally different from real estate business deals. President Trump has no experience in dealing with trade frictions, not to mention trade wars. In a globalized era when all the major economies are profoundly intertwined, unilateral acts of threats, coercion, and bullying can hardly shake a multilateral trade system from which most economies have benefited over the years.
The head of the International Monetary Fund, Christine Lagarde, recently warned again that there is no winner in a trade war. The same warning has been issued by Christian Ewert, the director general of the Brussels-based Foreign Trade Association, and Mukhisa Kituyi, the secretary-general of the United Nations Conference on Trade and Development. Faced with so much opposition and criticism both at home and abroad, President Trump will continue to see his trade policy backfiring.
