Charles Finny: Tough times for trade relations

Photo / Guy Body

Opinion

On our Friday, President Trump signed an executive order enabling the imposition of 25 per cent tariffs on some US$60 billion of Chinese imports. The actual products are as yet unlisted but reports suggest that the measure is likely to affect 1300 product lines in the technology space — aeronautics, modern rail, new energy vehicles and other high tech products have been mentioned. The actual list will be published within 15 days and then there will be a 30-day period for public comment before a final decision is taken.

The President is justifying the measure as a response to Chinese trade practices that allegedly involve the stealing of US intellectual property by Chinese firms. His speech suggested this was also driven by a concern at the size of the US trade deficit with China.

This move follows the announcement two weeks ago that the US was going to impose 25 per cent tariffs on many steel imports and 10 per cent on aluminium imports. This was justified on national security grounds. Originally these steel and aluminium tariffs were targeted globally but many countries look as though they will be exempted, temporarily at least. Australia, Mexico, Canada, EU, Brazil and Korea appear to be in that category. We don't know yet about New Zealand and Japan, but it looks as though China will face the tariffs — should they ever be imposed. These exemptions are interesting. The US seems to be saying you are exempted until May but during that period you need to negotiate some alternative arrangement. Are we talking about the voluntary restraint arrangements that were so common in the 1980s?

This could all be a negotiating tactic. Trump suggests he is a great deal-maker. Maybe this is all about getting countries to the negotiating table.

Until recently only Korea (because of the FTA renegotiation) and Canada/Mexico (because of the Nafta renegotiation) were willing to have serious engagement. China has been sending a series of high level emissaries to Washington DC and does appear willing to enter talks on the future shape of the trading relationship with the US.

There are people in Washington and Beijing suggesting the best way to diffuse tensions would be a FTA negotiation between the US and China. I can't see this being politically acceptable in the US at present but the idea is out there.

Likewise, senior EU figures have noted that President Trump seems to be talking about leveraging the steel and aluminium tariff threat to get the EU to drop protections against US imports. This had led to talk about sitting down with the US to consider re-starting the Transatlantic Trade and Investment Partnership (TTIP) negotiations which were suspended at about the same time the US withdrew from TPP.

If the result of all this sabre rattling is talks (or talks about talks) this is a good thing. But if some of these tariffs actually get imposed we have a problem.

First there is a direct impact on New Zealand. We do export steel and aluminium to the US and, unless we are exempted, we may lose our market there. I know that from Prime Minister Jacinda Ardern down, strong efforts are being made to achieve this exemption but we have yet to have this confirmed.

But even if we are exempted there could be indirect impacts. Where will the steel and aluminium from China and other non-exempted products go? What impact will this have on global prices — and specifically prices on products exported to New Zealand? And we have already seen negative reactions to these moves on global financial markets.

Perhaps just as important as these trade impacts is the fact that the US seems to be acting in breach of World Trade Organisation (WTO) rules in imposing the steel/aluminium and the technology tariffs. The national security argument looks extremely flimsy and there really is nothing I can think of to justify the technology tariffs (maybe — just maybe — some action after winning a WTO complaint might be justifiable, but this action is being proposed ahead of WTO action).

And these actions are a clear breach of US tariff commitments made in the WTO. This opens the potential for retaliation by China and others. China has already signalled to its importers of US grains that they might like to be considering alternate sources (eg Poland). And a list of potential retaliations has been made public — in retaliation for the March 8 announcement, not March 22.

China is saying it will fight this US action "until the end". Any retaliation involving agriculture risks impacts on global prices. There is a direct link between grain prices and meat and dairy prices in the US.

These developments also raise major issues of principle for New Zealand. Our exporters depend on this set of WTO rules and their subsequent improvement through bilateral or regional FTAs to underpin our trade.

If the US or anyone else can justify increasing steel tariffs on flimsy grounds, why can't they start restricting meat or dairy imports?

We, and others, are going to have to think hard about whether this needs to be challenged in the WTO. It could be another major test for our Government. And it will be another test for the WTO.

How will Trump react when his actions are ruled to be illegal?

Charles Finny is a trade commentator. He launched the China-New Zealand FTA as New Zealand's lead negotiator. He was later contracted by the New Zealand government to lead the negotiation on the trade agreement between New Zealand and the Separate Customs Union of Taiwan, Penghu, Kinmen and Matusu.