‘Hooked on revenue’: why Trump won’t budge on tariffs
The chief US negotiator for the Trans-Pacific Partnership warns that Donald Trump’s tariffs are likely to be maintained by future US administrations.
Donald Trump’s sweeping tariffs are here for the long haul and do not represent a passing phase but a new era in which the global trading system will be tested and brought to a crossroads. How the rest of the world responds will prove the critical question.
This warning is being sounded by Barbara Weisel, who was the chief US negotiator for the Trans-Pacific Partnership, a Pacific Rim free trading agreement signed by the US but never ratified.
Her message is that Australia should brace for the Trump tariffs to be maintained by future US administrations. And she suggests that nothing Australia offers by way of concession is likely to result in an exemption from the new 10 per cent baseline rate.
The administration has imposed its 10 per cent tariff and higher reciprocal rates under the International Emergency Economic Powers Act, a legally fraught move expected to end up in the US Supreme Court.
Yet the President argues the step is necessary because large and persistent US trade deficits and the hollowing out of the American manufacturing base have created a pressing economic emergency.
While optimistic that other nations will respond to Washington by doubling down on free trade principles, rather than retreating to protectionism, Weisel says the latter option will “lead to the unravelling of the system with no idea of what will replace it – an alarming prospect”.
In an exclusive interview with The Australian on the sidelines of the Australian American Leadership Dialogue in Adelaide last week, the non-resident scholar at the Carnegie Endowment for International Peace suggests there is a new opportunity for countries to work creatively to develop their own trade rules excluding the US and China.
But she warns the downside risk is that nations may be tempted to follow Washington’s example.
“The United States has tossed a grenade into the system, and the rest of the world is trying to figure out how to deal with it,” she says.
“The US actions have generated serious concerns about what they portend for the global trading system. If the US – which was the chief architect of the global trading system – feels justified in unilaterally imposing tariffs, why shouldn’t other countries follow?”
While the first Trump administration officially abandoned the TPP in 2017, the opposition to the Pacific Rim free trade agreement was continued by Joe Biden during his presidency.
Weisel suggests this trend will be repeated and Trump’s reciprocal tariffs will be upheld by his successors, Republican or Democrat.
“If the tariffs remain in place through the Trump administration, it will be difficult to lift them,” she says. “The government will get hooked on the tariff revenue. And interest groups that benefit from the tariffs will work to ensure they are maintained.
“The best example is the so-called chicken tax, a 25 per cent tariff on light trucks that remains in place today, which the US imposed initially in 1964 in retaliation for French and German tariffs on US chicken.”
Weisel, who served as the assistant US trade representative for Southeast Asia and the Pacific from 2004 to 2017, notes that the Trump administration has collected more than $140bn from its sweeping tariffs so far this year – an early sign of how difficult it will be for future governments to unwind them.
“There hasn’t been an across-the-board tariff increase like this since the Smoot-Hawley tariffs nearly 100 years ago,” she says. “Since then, the US – like other countries – has imposed tariffs on specific products to protect the economy from unfair competition or import surges.” Weisel says the broad tariffs imposed on China by the first Trump administration also were “maintained by the Biden administration”.
Trump repeatedly has railed against the global free trading system, arguing it has allowed other countries to “rip off” the US despite contributing to several decades of prosperity and economic growth.
Weisel says the Trump administration does not “believe the (trade) rules work as written. It believes it needs to take unilateral action to address its grievances and maintain US sovereignty.
“Even if Australia was prepared to offer concessions, I doubt the US would eliminate the 10 per cent tariff,” Weisel says. “The US has set this rate as the baseline price of access to the US market and does not seem open to negotiating it away.
“The US may be more open to negotiating a deal related to section 232 tariffs, including on steel, aluminium and other products that Australia exports.”
Weisel, who helped to negotiate the free trade agreement with Australia that entered into force in January 2005, says some countries are “already beginning to think about where we go from here”.
She says trade rules are “not written on two tablets that were carried down a mountain”. Nations can opt to “begin working together in small groups – that would exclude the US and China – to sketch out and begin implementing a vision for updated trade rules”.
These new rules could relate to “digital trade, environment, competition and how to deal with export of overcapacity. They could also include promotion of resilient and secure supply chains and economic security issues.”
In the meantime, she says, most nations responding to the Trump tariffs will be focused on “minimising the fallout” on their own economies. “Many will look to diversify their trading partners and negotiate new trade agreements to lessen their dependence on the United States,” Weisel says.
While Washington ended up withdrawing from the TPP that it had helped to create, the grouping nevertheless has continued to evolve in a sign of ongoing commitment to the benefits of free trade – a sign the world will resist following the US example.
Now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, its members include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
Britain was accepted as the group’s 12th member in February 2021 and, while China has applied for membership, it faces strong opposition – including from Australia.
Trump has frequently complained that America’s allies and partners have been worse than Washington’s strategic adversaries in exploiting trade ties with the US, and, controversially, he has applied tariffs to both friend and foe.
But the most powerful argument is the Trump tariffs are economic rather than strategic.
Weisel says they are unlikely to achieve their objectives and will raise costs, discouraging companies from relocating production to the US. This is the opposite of Trump’s intended outcome.
“I’m sceptical,” Weisel says. “Most products manufactured in the United States rely on inputs from other countries and can’t be easily replaced by US-produced inputs. The tariffs have now raised the cost of those inputs. So, it’s hard to see how this is going to help US manufacturers compete in global markets. Even those companies that are considering moving some manufacturing to the US may be put off by the higher input costs and uncertainty created by the administration’s trade policies.”
Weisel suggests that other countries will seek to limit their exposure to the US market.
“In the post-Covid period, there was much discussion of supply chain resilience and the need to build secure supply chains with trusted allies and partners to deepen trade linkages, divert trade from China and revitalise US manufacturing,” she says.
“But with high US tariffs, other countries have less incentive to reorient their supply chains to the US and alter trade flows in ways that could promote US manufacturing and jobs. Instead, they may seek to minimise their risk by limiting trade with the US.”
While the imposition of tariffs on some select products may be necessary, Weisel says this was already allowed for under current trade rules. However, an across-the-board 10 per cent global tariff is “inconsistent with US trade obligations – both its WTO obligations and its commitments under the bilateral FTA with Australia”.
Weisel warns that across-the-board tariffs will “simply penalise US companies, which depend heavily on foreign inputs to produce their goods, and American consumers, particularly lower-income Americans who spend a higher share of their income on consumer goods”.
“The impact hasn’t really been felt yet because of the delays in imposition of the tariffs and because companies stockpiled goods in anticipation of the tariffs,” Weisel says.
Some opponents of Trump’s trade agenda have pinned their hopes on the legal challenge to the imposition of sweeping tariffs under the International Emergency Economic Powers Act.
But Weisel says this is unlikely to result in a permanent reprieve for American trade partners, even if the US Supreme Court finds against the administration. Her message is for US trade partners to brace for further tariff pain.
“The case will likely end up in the Supreme Court,” she says. “I don’t know what the Supreme Court will do. Regardless, the administration is not going to lay down its weapons. It will have a fallback plan ready to go.”
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