What’s Been Happening?
In January 2017, US President Trump signed a presidential memorandum to withdraw the United States from the Trans-Pacific Partnership (TPP). Trump had previously argued that the agreement harms the U.S economy and the TPP was a “disaster done and pushed by special interests who want to rape our country”.
Despite their most influential country dropping out of the agreement, trade ministers from 11 remaining countries decided to press ahead in March this year, saying that they were showing resolve against protectionism through global trade. The new TPP deal covers Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Altogether, the pact covers 500 million people who account for 13 percent of the global economy.
Trump has alienated the United States from its allies and other countries further by declaring that he will impose levy penalties of 25 percent on steel and 10 percent on aluminium imports as part of his “America first” pitch for local jobs. Exemptions based on national security grounds and the economic relationships between various countries and the U.S will ideally be granted within the two week waiting period before the tariffs take effect. Neighbours Canada and Mexico have already been excluded by Trump as long as they negotiate a new North America Free Trade agreement.
On the other hand, China immediately threatened to curb imports of U.S soybeans in retaliation while the E.U has simply stated that they will react firmly with countermeasures to be proposed within days.
Following the announcement, Australia’s PM Malcolm Turnbull phoned President Trump and said “a good and very productive discussion” took place. It was verbally confirmed between the two that tariffs would not be imposed on Australian companies exporting steel and aluminium. Turnbull has said that he reminded the U.S President of the good trade and military relationship between and the US. 60 percent of Australia’s “warfighting assets” are derived from the US and thousands of U.S marines rotate through Darwin every year.
There are concerns that the implementation of tariffs can launch a trade war that will hurt other industries under a tit-for-tat approach. House Speaker Paul Ryan hopes that Mr Trump would “consider the unintended consequences of this idea and look at other approaches before moving forward”.
Some business leaders suspect that the steel and aluminium moves are a prelude to an increasingly protectionist administration, with upcoming moves likely to target China who, according to the Commerce Department, sold $375 billion more goods and services in the United States than what it had ordered.
There is also no time limit on how long the tariffs can last. If Trump wants to change the tariffs or introduce exemptions, he can file follow-on orders. Although countries can file a complaint at the World Trade Organisation, it would take years to make and enforce a ruling against the U.S who will likely argue that tariffs should be allowed to protect national security.