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  September 6th, 2018 | Written by

Justifying Trump’s tariffs wars

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  • In 1971, the US slapped a duty surcharge on imports to get trading partners to revalue their currencies.
  • US trading partners agreed to revalue their currencies in 1971 and an import surcharge was lifted two days later.
  • Trump has correctly identified some objectionable Chinese technology acquisition practices.

Is it possible to justify the Trump administration’s approach to import tariffs on the basis of a precedent that dates back to 1971?

At that time, President Richard Nixon wanted to revamp an international monetary system in which the word’s nations pegged their currency against the US dollar, yet the United States lacked the ability to change its own exchange rate. During the 1960s, the dollar became overvalued, and negotiations with other countries—especially Japan and Germany—to revalue their currencies bore no fruit. So, in August 1971, the Nixon administration slapped a 10-percent duty surcharge on all imports. At a conference in December 1971, Japan, Germany, the United Kingdom, France, Italy, and Sweden all agreed to revalue their currencies. Two days later, the import surcharge was gone.

According to Robert Dohner, a former Deputy Assistant Secretary for Asia at the US Treasury, the import surcharge were illegal for violating rules in the General Agreement on Tariffs and Trade (GATT). Yet Donner argues that breaking the rules can be justified in this instant because they were targeted at a specific behavior and were imposed for a limited period of time. And, of course, the tactic was successful.

Could the same principle be applied to President Donald Trump’s tariff war with China? Trump has correctly identified some objectionable practices of the Chinese, in their quest for technology acquisition. Among these are requiring foreign investments investment through joint ventures with Chinese firms; encouragement of acquisition of foreign technology through mergers and acquisition and investment in startups; the lack of legal redress for theft of commercial technology and trade secrets in its domestic legal system; and cyber espionage directed to the acquisition of commercial technology.

Some of these practices may be illegal under the domestic laws of some of China’s trading partners, but, according to Donner, current international rules are not equipped to deal with these actions. Little if any progress has been made to get the Chinese to cease and desist by way of negotiations.

Enter the Trump tariffs. But according to Donner, “everything that made the import surcharge effective, Trump’s trade policy toward China is not.”

First, it’s not clear what the administration wants from China. The administration’s description of its China policy has included everything from cessation of objectionable technology acquisition practices to the reduction of the bilateral trade imbalance and the reduction of Chinese production capacity to a deal to sell a large quantity of US goods to China.

The Trump administration has also squandered the opportunity to apply pressure on China through friends and allies by starting “trade fights with all of the countries that would be the most effective allies influencing Beijing.”

“Instead of a surgical strike,” Donner concluded, “Trump’s trade policy is carpet-bombing. The result has been widespread collateral damage—including to the United States—and no movement in getting China to address practices the administration has correctly identified.”