The odds of a Trump trade war just got higher by William Pesek

The odds of a Trump trade war just got higher by William Pesek

Topic: The odds of a Trump trade war just got higher

Writter: William Pesek

Publish Date: Sunday, 17 December 2017

Published on : Nikkei Asian review

The odds of a Trump trade war just got higher

America's negotiator-in-chief launches an opening salvo

China has expressed "strong dissatisfaction" over the U.S. government's anti-dumping probe of aluminum imports. © Imaginechina/AP

The administration of Donald Trump last month invoked powers no White House has in a quarter century, and it did so to probe Chinese aluminum imports.

Normally, the U.S. Commerce Department reacts to specific complaints by American companies. Initiating an anti-dumping case on its own is an aggressive step -- and perhaps a harbinger of the Asian trade war Trump long promised.

Trump's recent Asia tour temporarily eased worries that he would impose tariffs as high as 45%. But two reality checks since should dispel all optimism. One is Trump's return to a scandal-plagued White House desperate for an international win. The second is frustration that efforts at bromancing China's Xi Jinping to curb North Korea are not paying off.

Trump's Twitter feed suggests a caged and fearful leader. As Russia investigations close in on his inner circle, including son-in-law Jared Kushner, a trade battle could be just the thing. A populist attack on a nation Trump accused of "raping" America would change the subject and delight supporters. The bigger impetus, though, is disappointment that President Xi is not doing Trump's bidding on Kim Jong Un. Kim's Nov. 29 test of an intercontinental ballistic missile capable of striking the U.S. mainland proved that well enough.

Until now, Trump thought he could charm Xi into curtailing Kim's nuclear ambitions. Trump was also willing to hold back to get a giant tax cut through Congress. The aluminum case suggests 2018 could be the year of a trade war that Xi, Japan's Shinzo Abe and other Asian leaders hoped would never come.

Xi's team expressed "strong dissatisfaction" at a move that, for now, threatens $603.6 million worth of Chinese imports. Xi's China, though, is likely to be unbowed. With neither side giving way, imagine how global investors would react if Trump upped the ante and disrupted $577 billion in bilateral trade between the world's two biggest growth engines.

Nor should Japan expect to get off easily. Headwinds affecting its two main trading partners could derail its best run of gross domestic product gains in 16 years and slam a Nikkei Stock Average hovering at 26-year highs.

BAD OLD DAYS Tokyo's determination to go ahead with Trans-Pacific Partnership also comes with risks. The thin-skinned Trump, committed to negotiating a bilateral trade deal with Japan, might read Abe's TPP push as disloyalty worthy of retaliation. South Korea is in harm's way, too, as Trump tears up a 5-year-old free trade pact.

Trump's worldview is of the stopped-clock variety. In Tokyo last month, he spoke of U.S.-Japan automaker tensions as if it were 1987, not 2017. And his views on China "cheating" America seem stuck in December 2001, when Beijing entered the WTO. Few acts would thrill Trump supporters more than kneecapping an intergovernmental organization the president claims has "taken advantage of this country like you would not believe." As he told Fox News on Oct. 26, the WTO "was set up for the benefit of taking advantage of the United States."

Does the global trade system have problems? Absolutely. Does Beijing, with its massive subsidies for state enterprises and forced joint-venture policy for foreigners, take liberties? Yes. But tossing grenades at a highly indebted and interconnected global economy is a grave threat to growth and stability.America's negotiator-in-chief launches an opening salvo

It would also be a pyrrhic victory. Costs for U.S. consumers would skyrocket, bond yields would soar and inflation would increase. What is more, Beijing has some serious leverage: $1.18 trillion of U.S. Treasurys it could dump in nihilistic retaliation.

You would think a businessman famed for a book called "The Art of the Deal" might get that. But an embattled and paranoid politician gunning for enemies, real and imagined, is more apt to lash out. The Trump White House dusting off a trade weapon last used in 1991 seems a bad omen for Asia's 2018.

William Pesek is a Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."