President Trump prepares to open new front in trade war

Unexpected move

According to VOX, on December 2, Trump took to Twitter to announce that the US would impose steel and aluminum tariffs on Brazil and Argentina, in response to what the US leader described as the “massive devaluation of their currencies,” which “is not good for our farmers.” “Therefore, I will be reinstating tariffs on all steel and aluminum coming into the US from those countries, effective immediately,” Trump announced, adding that he hoped the US Federal Reserve would take action to stop those countries from taking advantage of the strong US dollar by further devaluing their currencies.

Although Mr. Tariff, as Trump calls himself, favors protectionist policies, the president’s decision to escalate the existing trade conflict was unexpected. In the spring of 2018, the Trump administration imposed a 25% tariff on steel and a 10% tariff on aluminum on a range of trading partners, including the European Union, Mexico, and Canada (the tariffs on Mexico and Canada were later lifted under the USMCA).

The Trump administration initially threatened other trading partners, including Brazil and Argentina, with tariffs, but eventually struck a last-minute deal to avoid them. Instead, the U.S. government has restricted steel and aluminum imports through quotas.

According to CNN, after Canada, Brazil is still the country that supplies the most steel to the US at the beginning of 2019. Last year, Brazil's steel exports to the US reached 2.6 billion USD. Meanwhile, the Washington Post said that Argentina is not a major supplier of this item, with the above figure only at 700 million USD.

But now Mr Trump wants to revisit the tariffs, although his explanation remains confusing – and the move appears to have caught the new recipients of Mr Trump’s trade wrath off guard.

The US steel industry is still struggling, despite Trump's tariffs on steel imports from other countries. Photo: EPA

Why Brazil and Argentina?

Many are asking why the US president wants to impose tariffs on Brazil and Argentina at this time. On Twitter, Mr. Trump accused the two countries of “massive devaluation” of their currencies. But both Brazil and Argentina are dealing with their own economic wounds. In Argentina, the right-wing government of Mauricio Macri is struggling with a financial crisis, struggling to control the falling peso. Brazil’s currency has also suffered recently, partly because of what’s happening in Argentina. At least according to the US Treasury, as of May, neither Brazil nor Argentina were on a watch list of countries that need to pay closer attention to their currency practices. That means Trump’s tariffs could put more pressure on these South American economies and their currencies.

Brazil and Argentina are both more or less “winners” in Trump’s trade war with China.

Brazil and Argentina are both more or less “winners” in Trump’s trade war with China. Brazil is currently the leading supplier of soybeans to China, and Argentina has also signed a deal to export soybean meal to China for animal feed. But given the volatility of the Sino-US negotiations and the pressure on the global economy, it is unclear how long these successes will last.

Argentine soybean farmers benefit from the trade war between the US and China. Illustration photo: Getty Images

Meanwhile, Trump’s recent announcement seems a bit odd from a political perspective. The new right-wing populist president, Jair Bolsonaro, has been strengthening Brazil’s ties with the Trump administration, and Trump has previously mentioned the possibility of a bilateral free trade agreement with Brazil. Just last week, Brazilian Economy Minister Paulo Guedes attended several meetings with US trade officials, and said that Washington liked the economic policies of the right-wing Bolsonaro administration.

Responding to Trump's tweet, Mr. Bolsonaro affirmed that there is an "open channel" with Trump and will contact the US leader to discuss. "I will call him so that he does not tax us," Reuters quoted Bolsonaro as saying on December 2. "Our economy is basically based on goods, that's what we have. I hope he understands and does not punish us in this area, and I am almost sure he will listen to us."

US President Donald Trump and Brazilian President Jair Bolsonaro at the G20 summit. Photo: Reuters

Meanwhile, Argentina is currently undergoing a political transition, with right-wing President Marci leaving office and being replaced by left-wing Alberto Fernández on December 10.

Trump's announcement undoubtedly comes at an unfortunate time for both Brazil's new president and Argentina's incoming administration.

Trump’s announcement, therefore, comes at an unfavorable time for both Brazil’s new president and Argentina’s incoming administration. It’s also not an easy time for Trump, as the US leader is trying to resolve a long-running trade dispute with China. Washington and Beijing announced a “phase one” trade deal in October, but the terms remain vague and the deal has yet to be formally signed. It’s not even certain whether that will happen before the end of 2019.

According to VOX, the US is expected to impose an additional $156 billion in tariffs on Chinese goods on December 15, which means that basically anything from China entering the US will be subject to tariffs. Trump said earlier this week that he was “very happy with the situation,” but objectively speaking, his trade war with China has caused losses for some US manufacturers and farmers. More broadly, the US-China trade tensions have affected the entire global economy. Trump is also waging a trade war with the EU, through several tariffs allowed under WTO regulations; he has yet to get the US Congress to ratify the revised NAFTA agreement... And now, Trump is entering the 2020 election race, adding more volatility to the US trade situation by targeting Brazil and Argentina.