Trump’s Tariffs Trade War

The negative reaction to Trump’s tariffs announcement, especially from Republicans and trade partners, has been strong, even prompting the resignation of Trump’s chief economic advisor. Economist and author Heiner Flassbeck discusses possible outcomes

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Story Transcript

SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Baltimore. President Trump announced a 25 percent tariff on imported steel, and a 10 percent tariff on imported aluminum last week. The negative reaction to this plan, especially from trade partners, Republicans, and from the U.S. Chamber of Commerce has been quite strong. 107 Republicans signed a letter to Trump, urging him to reconsider. The European Union and China have promised to retaliate. The EU even issued a list of U.S. products that would face stiff tariffs when imported to Europe. Meanwhile, Trump’s Chief Economic Adviser, Gary Cohn, the former Goldman Sachs president and free trade advocate, announced that he will resign. Trump administration officials now say that some countries, such as Canada and Mexico, could be exempt from this tariff.

Now joining me to discuss Trump’s deal and aluminum tariffs is Heiner Flassbeck. Heiner is director of Flassbeck Economics, and it is a consultancy for global macro-economic questions, and he’s also the editor of Makroskop, an internet magazine. He’s also the co-author of the book “Against the Troika: Crisis and Austerity in the Eurozone,” which he co-wrote with Costas Lapavitsas. I thank you so much for joining us, Heiner.

H. FLASSBECK: Thank you for inviting me.

SHARMINI PERIES: Heiner, what’s your first take on these tariffs that Trump is threatening to implement.

H. FLASSBECK: On the one hand, the Germans are imposing tariffs on steel from China, the U.S. imposing tariffs on steel from Germany, so obviously, that will not solve the global steel problem, but on the other hand, this is not really a serious measure. That’s not very important. It’s changing the trade flow a little bit, but I think it will not make a great impact, and if he takes Canada and Mexico out, then the overall effect will be very small, but the point is, everybody is talking now about the beginning of a trade war, and the question is whether the Europeans will retaliate.

As I am concerned, I can only advise the Europeans not to do so, because that would lead to nowhere, and in addition, I mentioned it once in an interview with you, Trump has one good point. That is, the Europeans have huge surpluses in trade, and the U.S. has a deficit for 30 years, and in one thing, Trump is right. He said, “To win a trade war is easy, and the winner will always be the deficit country.” Across the model, that’s right. The losers will be the surplus countries, so I very much hope that Europeans understand this, and in particular, the Germans, because the German surplus it the biggest in the world. The Germans understand that it doesn’t make sense, and it is not in their interest to retaliate, so that one can talk about other measures and reasonable measures to bring down the deficit in the U.S. on the one hand, and the surplus in Germany and Europe on the other hand.

SHARMINI PERIES: You said something really important here, Heiner, where you said the Germans have tariffs on imported steel from China, and the U.S., and so on. In this era of new liberal free trade, there’s really no such thing as free trade. There’s always been various tariffs implemented in one way or another. How did we actually get here?

H. FLASSBECK: That’s absolutely true, what you say. There is no free trade out there. At least there is something people call “free trade,” but it’s not free trade, and in addition and even more important, it’s not efficient trade, what we have. We have a certain trade regime, and nobody knows whether it’s really good or it’s bad, and the dogma of it, the dogma is the dogma behind the Republicans, and the dogma with the German conservatives and liberals is to say, “Well, free trade is good under whatever circumstances.” That’s definitely wrong.

It’s not good under whatever circumstances. For example, you can have the wrong exchange rate between the two currencies. If the dollar would be 20 cents up, so down to the Euro, so 1.50 instead of 1.25 down to the Euro, then the whole problem would be solved in a much more elegant way than with the silly tariffs on steel and other products.

This is not a reasonable way, but we do not have a reasonable exchange rate. We do not have a reasonable exchange rate. We do not have a reasonable trade regime. That’s the whole matter, and that is why the Germans can go on with the kind of wage dumping that they’re doing for a really long time, and protecting their surplus all the time. The Chinese have reacted to the criticism coming from the U.S., but nevertheless, they’re focused by the U.S. administration as being the bad guys, so it’s a very irrational and inefficient thing that we are looking at, and unfortunately, WTO does not play a role.

WTO never played a reasonable role in this, because for the one reason that the big powers did not accept their ruling, but on the other hand, it is also true that WTO always defended this kind of seemingly free and efficient trade, although it is not, and they never accepted any criticism.

SHARMINI PERIES: Heiner, Trump is selling his policies to the American public as a way of preserving U.S. manufacturing jobs. Especially blue-collar workers seem to buy into this concept, and of course we are heading into a midterm election year, 2018, here in the U.S. What do you have to say to those workers, in terms of this policy on steel that Trump is advocating?

H. FLASSBECK: As I said, it’s just protecting … It may protect a number of jobs, not very many, in the United States, but it’s not solving the overall trade problem that we have.

As I said, a lower dollar against the Euro would be much more efficient, would be much more elegant, and it would put additional pressure on Germany to bring down its surplus, so there are measures that are much better, and the point is, we need urgently for the whole world system and for trade to be efficient, and to play a reasonable role, and to really create jobs, what everybody perceives to be the case, but it is not the case.

We need for that, we need a new currency order much more than a trade order. The trade order is flawed in many respects. You can’t do this or that. You draw on this paragraph, or on another, on articles of the [inaudible 00:07:56] or not. You take national security as an excuse, or whatever you can do, and nobody can enforce it in the WTO in the end.

As I said, much more important would be to have a reasonable global monetary order, where the exchange rates are steered in a certain way, but this is absolutely taboo for the United States for a long time, because they are protecting Wall Street, because Wall Street is making money all the time with currency speculation. This would be a measure that would be important for developing countries and developed countries alike, but it is absolute taboo, and so we continue with this kind of selective measures now, but overall, you cannot say, “Is this trade regime good? Is it efficient? Is it free?” Nobody knows. It’s a mess. It’s overall a big mess.

SHARMINI PERIES: Heiner, finally, how would you regulate a currency order?

H. FLASSBECK: A currency order can be regulated only in one way, namely, to preserve the competitive positions of each country against the other countries, which means, no country should use wages, or taxes, or whatever, to improve its competitiveness at the expense of other countries. For that, you need an agreement that at a certain point of time, you fix. You don’t fix absolutely, but you adjust the exchange rate in a way that they compensate different inflation levels, and you avoid strong competitive measures in terms of taxes.

This is a very simple measure. This is a very simple system. The only thing that is lacking for 50 years, 60 years, is that the political will, the ability to put pressure or to go against Wall Street, as I said, and the speculators all around. It’s also London [City 00:10:00], and Frankfurt as well, against all these speculators that are driving the global system permanently into a status of non-efficient trade, of huge imbalances, and without any reason, but the only reason is making profit for these people.

SHARMINI PERIES: Heiner, as always, I thank you so much for joining us, and we look forward to having you back.

H. FLASSBECK: You’re welcome. Thank you. Bye bye.

SHARMINI PERIES: Thank you for joining us here on The Real News Network.