In the span of just six hours on Thursday, President Trump took two major trade actions: reimposing aluminum tariffs on Canada and setting restrictions on the use of two major China-based apps.
The moves both surprised and worried trade watchers.
For most of this year, Trump has largely eased off the escalating trade wars that defined much of his presidency in 2018 and 2019. Experts are now concerned that his aggressive and seemingly unexpected actions on trade ahead of the election risk kneecapping an economy that’s already reeling from the pandemic.
“This recent eruption of actions reflects a decision by the Trump reelection team that they need a couple of very clear messages to have a chance of winning,” said Gary Hufbauer, a trade expert at the Peterson Institute for International Economics in Washington.
“This will be a continuing and an escalating drama up until the election, and perhaps up to January 20th,” he added.
Trump, who rode a wave of trade antipathy to the White House in 2016, appeared to have turned a corner in the past year, from finalizing the United States Canada Mexico Agreement to signing the “Phase One” deal with China in January.
But with polls showing him trailing presumptive Democratic nominee Joe Biden nationally and in key battleground states, Trump has once again turned up the heat up on trade.
Speaking at a Whirlpool factory in Ohio on Thursday, he announced the reimposition of the aluminum tariff on Canada.
“Several months ago, my administration agreed to lift those tariffs in return for a promise from the Canadian government that its aluminum industry would not flood our country with exports and kill all our aluminum jobs, which is exactly what they did,” Trump said.
Hufbauer characterized Trump’s move as political posturing more than providing an economic benefit to the U.S.
“The aluminum tariff has no support from the business community in the U.S., including the aluminum producers,” Hufbauer said.
Canada swiftly reacted to Trump’s announcement, imposing its own counter-tariffs on American aluminum products.
More ominously, Trump indicated that something bigger was in the works.
“I’m going to be signing something that’s very important over the next, probably, week. And it’ll have a tremendous impact on fairness and trade,” he said Thursday.
The same day, he announced executive orders that would essentially ban China-based apps TikTok and WeChat in late September, part of a series of escalations with China that included Secretary of State Mike Pompeo formally rejecting Beijing’s claims to the South China Sea.
“That action was not at all divorced by the trade war,” said Peter Cecchini, founder of AlphaOmega Advisors, referring to Pompeo.
The South China Sea, Cecchini noted, is a major shipping route.
Trump’s targeting of Canada and China in quick succession sparked some criticism on Capitol Hill, particularly since Canada is viewed as a trusted ally and neighbor.
“President Trump is right to continue to confront China for its unfair trade practices,” Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said. “The administration should likewise work with Canada to focus on ending China’s trade abuses.”
House Ways and Means Committee Chairman Richard Neal (D-Mass.) was more critical.
“The president has consistently shortchanged America’s workers and industry with his haphazard and half-baked policies,” he said. “This is just another example.”
Tori Smith, a trade expert at the conservative Heritage Foundation, said the new trade barriers would only undermine the economic recovery.
“It makes very clear that the administration is really nor prioritizing a pro-growth trade strategy,” she said.
What Trump does next has trade watchers, and the markets, on edge.
One potential move includes scrapping the Phase One deal altogether and upping tariffs on China. As the coronavirus pandemic set in, Trump said on several occasions he was “torn” about whether to keep the deal alive.
Another possible avenue would be the unprecedented use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs under the guise of an emergency. Last year, Trump threatened to use those powers against Mexico over illegal immigration but later backed down.
The IEEPA was the basis for Trump’s executive orders on TikTok and WeChat.
A significant escalation on any trade dispute could send markets back into a tailspin and undermine struggling businesses less than three months before the election.
But Cecchini thinks markets are more concerned with immediate issues, and that the broader damage to consumers and economy would likely come further down the line.
“Right now people are blinded by other things, the pandemic recovery and the fiscal response to it,” he said.
“So while over time it will matter — it will be the biggest risk to market — right now people are focused on other things.”