Trump’s Tariffs Bring Trading Partners to the Negotiating Table

By Elizabeth J. Drake, Partner, Schagrin Associates

***Editor’s Note: The following article is one viewpoint on President Donald Trump’s tariffs. On May 23, another viewpoint was published in the article “ Trade Disruption and the Continuing Economic Threat California Agriculture. ”

In March of this year, President Trump announced tariffs on imported steel and aluminum to protect national security and possible tariffs on other imports from China in response to intellectual property theft and forced technology transfers. Many commentators claimed the tariffs would prompt a disastrous trade war.

These initial alarmist reactions were unfounded. To the contrary, the tariffs have galvanized our trading partners to start addressing fundamental distortions to the global economy that have persisted for far too long.

In 2001, when China joined the World Trade Organization, many hoped China would become a responsible participant in the global economy. The opposite occurred. The Chinese government poured billions of dollars into targeted industries and propped up bloated, unprofitable state-owned enterprises, and it required foreign investors to partner with domestic firms and hand over critical technology in order to access the Chinese market. The result was exploding overcapacity in many sectors, a ballooning Chinese trade surplus, the closure of many U.S. manufacturing plants, the loss of middle-class American jobs, and the hollowing out of countless communities.

Years of negotiations, consultations, summits, and dialogues led by Administrations of both parties failed to solve the problem. In steel, in particular, China built more than enough capacity to serve the entire world market, putting the global industry in severe distress, particularly in the United States.

Instead of sparking a trade war, countries are now paring back their own steel exports and also addressing Chinese trade distortions. Europe launched its own safeguard investigation. Canada plans to monitor Chinese efforts to circumvent the tariffs. Argentina, Australia, Brazil, and Korea agreed to limit their exports to the U.S. Finally, China is now negotiating with the U.S. on a rebalanced trade relationship, though China must fundamentally reform its mercantilist system for meaningful change to be achieved.

While much remains to be seen, the tariffs have so far spurred progress. Rather than raising alarms about a trade war, those who agree on the value of a rules-based trading system should focus on maximizing this opportunity. If used correctly, the tariffs could help end rampant unfair practices that have deprived our industries and workers of a fair chance to compete. This, in turn, could be key to rebuilding faith in a more balanced and rational global economy in the years to come.

Elizabeth J. Drake is an international trade attorney and partner at Schagrin Associates in Washington, D.C. Prior to joining Schagrin Associates in 2017, Ms. Drake practiced trade remedy law for twelve years and served for six years as an international policy analyst at the AFL-CIO. Ms. Drake received her J.D. from Harvard Law School and a B.A. in Anthropology from the University of California at Berkeley. The opinions in this article are presented in the spirit of spurring discussion and reflect those of the author and not necessarily the Treasurer, his office or the State of California.

California State Treasurer's Office

Written by

Fiona Ma, CPA serves as California’s 34th State Treasurer

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