Trade War SitRep: Winter Has Come

Trade and Retaliatory TariffsTrade War SitRep: Winter Has ComeIt’s not over. More tariffs and troubles are on the horizon.

Agriculture, Budget & Tax,  | Analysis
May 20, 2019  | 4 min read | Print Article

It’s been an eventful few days for President Trump’s trade war.

First, the tariff fight between the U.S., Canada, and Mexico is (fingers crossed) over! On Friday May 17, the three countries announced an agreement to eliminate the U.S. tariffs on steel and aluminum products from Canada and Mexico, as well as our friendly neighbors from the north and south eliminating retaliatory tariffs. President Trump then lifted the tariffs on May 19.

Quick backstory and refresher: Tariffs on Canada and Mexico were imposed because the administration – laughably – claimed imports from these countries posed a national security risk. Conveniently the tariffs were also cited as an incentive to get them to renegotiate NAFTA. A renegotiated and rebranded NAFTA (now the United States Mexico Canada Agreement — USMCA) was signed by the three leaders on September 30 of last year. Meanwhile the tariffs and retaliatory tariffs continued to put a damper on the economy, agriculture especially, and are one of the largest stumbling blocks, especially among Republican Senators such as Chuck Grassley, to Congressional approval of NAFTA 2.0.

There are still numerous steps that must occur before NAFTA 2.0 goes into effect: Mexico passed a new labor law but House Speaker Nancy Pelosi still wants stronger labor enforcement, and all three legislatures have to pass the new NAFTA. So at this point there’s been a lot of hurt for not a lot of good.

Speaking of not good. President Trump also announced the decision to give the United States Trade Representative 180 days to negotiate with the European Union and Japan to address the supposed national security risk Americans face from importing autos and auto parts from these long-time allies. If no agreement is made by November 15, $360 billion worth of autos and auto parts imported into the U.S. will be subjected to increased tariffs. While the president’s statement says he finds accurate the Commerce Department’s findings that Acuras and Audis cause ouchies on American sovereignty, taxpayers are unable to verify said statements because the report by the Commerce Department has not been made public. For the record Audis—owned by the Japanese automaker Honda—are manufactured in Ohio, not Osaka and have been for decades. Trade is complicated.

Memorializing the Death of Checks and Balances

Finally, the administration announced it would be increasing U.S. agriculture’s reliance on federal aid in place of trade. After increasing tariffs on $200 billion in imports, and China retaliating by increasing tariffs on $60 billion of U.S. goods, the administration announced plans for a second, bigger round of deficit financed farm aid to compensate for lost exports. The Trump Administration already directed $12 billion to this politically crucial portion of the president’s base. Now the administration wants to dole out $15-$20 billion in additional subsidies this year since the trade war with China still isn’t resolved.

We’ve been tracking the trade war since it started. (If you want to see the raw numbers, we’ve created a database of tariffs that is easily downloadable here.) One of our greatest concerns when the administration announced plans for the first round of Ag bailouts in July 2018 was that this “temporary” government program would be anything but. We hate to say told you so, but well, we did.