President Trump has managed to enrage most of America’s closest allies by hitting them with name-calling, Twitter outbursts and steep tariffs on their steel and aluminum. In the past 24 hours, he has escalated his hardball tactics further, telling Canada and the European Union that if they don’t reduce their trade barriers, he’ll hit them with more tariffs.
Setting aside his harsh and bullying approach, there’s some truth to what he’s saying. Trade barriers remain, even among allies.
“Why isn’t the European Union and Canada informing the public that for years they have used massive Trade Tariffs and non-monetary Trade Barriers against the U.S. Totally unfair to our farmers, workers & companies,” he tweeted Thursday. “Take down your tariffs & barriers or we will more than match you!”
Many experts like to remind the president that the average tariff rates are virtually the same in the United States, Canada and the European Union, meaning most goods coming into these countries face low tariffs (less than 5 percent), if any at all. But Trump is right that a few goods still face high barriers to entry.
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The World Trade Organization (WTO) tracks how many imports face tariffs of more than 15 percent, and on this metric, the United States looks better than its peers. According to the WTO, 7.1 percent of Canadian imports face these high tariffs, 4.1 percent of imports to the E.U. face them and 2.8 percent of imports to the United States are hit with high tariffs.
“There are tiny nuggets of truth in Trump’s trade policy,” said Scott Lincicome, a trade lawyer and fellow at the Cato Institute, a libertarian think tank that is a strong advocate of free trade. “He has some good points. Unfortunately, his execution is lacking.”
The U.S.-Canada dairy spat
For example, Trump called out Canada on Twitter for its 270 percent tariff on milk, a steep penalty that has made it difficult for American dairy farmers to sell to Canada. For years, U.S. farmers got around this restriction by selling ultrafiltered milk, which is high in protein and fat and often used to make cheese and yogurt, since that wasn’t subject to Canada’s tax.
But all of that changed in recent months after the Canadian government tweaked its laws, causing ultrafiltered milk sales from the United States to drop substantially. The Canadian government tightly controls the volume of dairy products in the country and the price. Canada dropped the price that its farmers receive for ultrafiltered milk below the global level, making it nearly impossible for U.S. product to compete anymore.
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Agriculture has long been one of the thorniest issues in global trade. Historically, countries wanted to protect their food supplies, and farmers proved a powerful political voice. In addition to Canada’s restrictions on dairy imports, the European Union has more than a 33 percent tariff on U.S. dairy products. (In contrast, the U.S. tariff on E.U. dairy is 17.5 percent.) The E.U. also prevents most genetically modified American crops from entering its borders.
Manufacturing has been another tense one. The E.U. currently has a 10 percent tariff on American auto imports, while the United States has a 2.5 percent tariff on imported European cars, a point Trump makes often.
The explosion of non-tariff barriers
Countries also don’t just use tariffs to block imports from coming in. As Chad Bown of the Peterson Institute for International Economics and Meredith Crowley of the University of Cambridge chronicled in a 2016 research paper, there has been an explosion of other trade barriers in recent years. These are things like quotas, lengthy inspections at the border, requiring additional documentation, subjecting imports to more safety requirements or subsidizing domestic goods to make them cheaper than imports. It’s the quiet trade war.
Examples include the E.U.’s “public health” restrictions on hormone-treated beef and GMO crops, as well as various safety and environmental restrictions on cars. Canada also has tight limits on poultry and egg imports, and the United States has accused Canada of subsidizing its lumber industry.
Bown and Crowley found that all of these countries subject some agricultural products to import quotas, meaning that only so much of the item can enter before hefty tariffs kick in. In the United States, only 4.5 percent of agricultural products fall under these tariff quotas. That’s far below the 9.5 percent falling under quotas in Canada and the 11.3 percent in the EU.
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Then there’s airplanes. Boeing, a U.S. company, and Airbus, a European company, both get some aid from their respective governments, but there’s been a huge case at the WTO since 2004 over which government subsidies are worse. The latest WTO ruling was in America’s favor, and Trump is now threatening sanctions.
Of course, the United States isn’t a total saint on trade, either. Michael Strain of the American Enterprise Institute pointed out that the United States has wildly high tariffs, such as 350 percent on smoking tobacco, 130 percent on peanuts and 99 percent on prepared groundnuts.
Foreign companies have also complained about all the state and local regulations and the Buy American Act, which make it hard for foreign companies to bid on some government projects. And the United States has plenty of its own subsidies and protections for agriculture (especially on sugar).
Trump’s tactics appear to be backfiring
While Trump makes some valid points on trade, the problem, many experts say, is that Trump’s chief trade tactics are publicly berating other nations and putting up more trade barriers. He even has walked away from deals such as the Transatlantic Trade and Investment Partnership (TTIP) between the United States and E.U. that were trying to bring down tariffs, and he’s threatening to abandon NAFTA.
Unsurprisingly, Canada and the E.U. don’t like Trump’s tariffs, and they have announced they are retaliating by putting tariffs on some items U.S. companies sell in their countries.
Trump might be calling for nations to tear down their trade walls, but so far, he has managed to get other countries to make the existing walls higher.
“Negotiating with a gun to someone’s head doesn’t usually work,” said Carlos Gutierrez, who served as commerce secretary under President George W. Bush and now advises companies and foreign governments. “We’re trying to improve trade, but the way it’s being done is backfiring on U.S. companies and the U.S. economy.”