‘Trade War’ Battlefront: How Long Before Trump’s Tariffs Are Likened To Economic Warfare?

People wave Turkish flags and posters of Turkish president Recep Tayyip Erdogan during a commemoration event for the second anniversary of a botched coup attempt, in Ankara, Turkey, Sunday, July 15, 2018. The Turkish leader said Trump’s latest tariffs were economic warfare.(AP Photo/Burhan Ozbilici)

Someone is catching on. Trump’s trade policy is looking a lot like economic strangulation or—to some—outright economic warfare. The president’s penchant for tariffs is not all about Make America Great Again.

Turkey’s president Tayyip Erdogan was the first official to call the tariffs an attack on his economy. On Saturday the Turkish leader said Trump’s increased tariffs on steel and aluminum exports were the “missiles” of an economic war, Reuters reported him saying. “If there are dollars under your pillow, take these out. … Immediately give these to the banks and convert to Turkish lira and by doing this, we fight this war of independence and the future,” he said on Friday, hours after his country’s currency lost 20% of its value against the dollar, an all-time low.

Once again, Trump’s Tweets set the market on fire. The iShares MSCI Turkey (TUR) exchange-traded fund fell 14.53% Friday, the worst performer of any major emerging market. The New York Times came out in favor of Trump in their criticism of Erdogan. They have never come out in favor of Trump with regards to tariffs used for protectionist purposes.

See: Turkey’s Downward Spiral — The New York Times

More than just MAGA. President Trump is using trade tariffs as a tool of foreign policy, not just as old fashion protectionism. (Photo by BRENDAN SMIALOWSKI/AFP/Getty Images)

What’s going on?

Trump unexpectedly doubled steel tariffs to 50% and on Turkish aluminum imports to 20%. The action was taken after talks broke down over the release of an American pastor named Andrew Brunson who is being accused of antigovernment espionage and terrorism there.

Steel is a top 10 export for Turkey, accounting for nearly 8% of its foreign trade balance. The existing tariff has already cut Turkey’s steel exports to the United States by 56% to just below half a million tons between January and May. The reduction led to a 5% contraction in Turkey’s overall steel trade in the same period. The U.S. used to be Turkey’s top steel market. Not anymore.

Markets tend to overreact even more to negative headlines in low-volume summer months, sending security prices lower.

Turkey is not as relevant to the global economy as China. But Trump’s ratcheting up of tariffs can be seen, and should be seen, as much more than just protecting American blue-collar labor. Some of the tariffs enacted since he became president are going for the jugular of other economies in order to pressure them politically. That pressure is not always about more fair trade practices or intellectual property rights. These tariffs are as much geopolitical strategy as they are a hindrance to foreign competitors and the supply chain.

Turkey is a NATO member state. It has a mutual defense treaty with Washington, still has U.S. nuclear weapons at the Incirlik air base and was considered a partner in Syria. Now that Washington has failed to oust Bashar Assad, those seen as friendly to Assad have been on the receiving end of Trump’s belligerence. That includes Iran, Russia and now Turkey, with Turkey getting slapped recently because of one pastor being tried under antiterrorism laws in Turkey. The latest upping of the ante against an important Turkish trade item is seen, by Erdogan and maybe most of Turkey, as a switchblade held to their necks.

Russia faces similar ire. Although Putin and Erdogan are far from buddies (Putin has sanctioned Turkey before and has said Erdogan helps fund ISIS in Syria), they both are under pressure from Washington because of Syria.

All of the latest sanctions bills against Russia include a note on Syria. Whereas initial sanctions were based on Russian incursion into Ukraine, a country that’s merely a fuzzy blip on America’s radar, the latest bills being written by Republican neoconservatives and Democrats throw bones to both sides of the aisle: The Democratic sponsors of those bills get to officially blame and punish Russia for election meddling, and the Republican warlords who brought us the surety of WMDs in Iraq get to punish Russia for keeping Assad in power. Due to the near unanimity of approval of these bills in the Congress, they are veto-proof once they hit the Oval Office.

New sanctions threaten Russia’s most important lenders—Sberbank and VTB Bank—and all of its energy companies. The veto-proof sanctions bill begrudgingly signed into law by Trump in August 2017 threatens Gazprom’s new gas pipeline into Europe, called Nord Stream II, a pipeline Trump described as a direct competitor to American LNG. Russian sanctions have gone from punishment over Ukraine to a global swipe against Russia’s most important companies, who just happen to be a challenge to U.S. energy interests abroad. If this keeps up, it is not hard to imagine bans on owning corporate securities issued by sanctioned entities.

Worth noting, the sanctions against Russia have also hurt Exxon, which lost a $720 million joint venture with Rosneft in the Kara Sea.

Still, this is a drop in the bucket for Exxon. Rosneft, meanwhile, is sanctioned, and those sanctions could worsen. To date, none of those sanctions have returned Crimea to Ukraine or made pro-Russian groups in the Donbass region surrender to Kiev. But they have made it harder for Russian state-run energy companies to find cheaper forms of credit. They have made it impossible for them to partner with foreign firms in directional drilling for Siberian hydrocarbons. That has kept Russian oil and gas development in check.

Putin and Xi: Both are American trade rivals and foreign policy rivals. (Photo by Mikhail MetzelTASS via Getty Images)

See: Trump Goes For China’s Jugular — Forbes

This ‘Trade War’ Is Not Scaring Wall Street Too Much — Forbes

Trump Is Onto Something — USA Today

Then there is China.

Perhaps the biggest threat of all, China has grown incredibly over the last 20 years. For the most part, they have done so through a policy of tech transfers. That means if you wanted to build an automotive engine in China, you had to partner with a company there and teach them how to build the same exact engine. Other means were pure thievery. Intellectual property rights were never a thing in China. But they are becoming a thing now as China moves far up the value chain and wishes to protect its tech. Companies like Huawei are direct competitors to Cisco Systems in Asia and Latin America.

That the U.S. has used its sanction and tariff policy to hurt Chinese telecommunications firms and its computer science fields should come as no surprise. Trump hasn’t built a wall on the Mexican border, but he is constructing one around China in order to hinder its high-tech development. Washington is worried about Chinese competition in Asia in the years ahead. These tariffs come in handy.

It is not hard to imagine that at some point, Xi Jinping and Putin will start to cry foul. Deeper sanctions and tariffs against key competitive industries will be looked at as economic warfare and framed as such by their politicians. The risk is that Washington sows divisions and anyone hoping for negotiated settlements with China, in particular, will be disappointed.

Right now, some vocal Chinese policy wonks are divided over Xi’s handling of the trade dispute. Hardly a week goes by without some academic or think tank analyst—quietly being muffled on the mainland—come out against Xi’s tit-for-tat strategy. There is a sense of great concern in the pages of the South China Morning Post, the only allowed opposition on this subject.

Iranian President Hassan Rouhani. His oil and gas industry is sanctioned again. While sanctions policy is different from world trade rules related to tariffs, the sanctions policy simply means less Iranian oil going to France, etc. It disrupts the flow of oil and gas from competitors unfriendly to Washington and her allies. (Photo by IRANIAN PRESIDENCY / HANDOUT/Anadolu Agency/Getty Images)

If Beijing comes out and begins framing Trump’s moves as economic warfare, it gives the tariff exchange a totally different feel in China. This goes from the Americans just wanting fairer trade and open markets, to Americans wanting to stifle Chinese development. If Xi, like Erdogan, starts to call this an act of economic war, it could lead to a different response from him instead of just tariffs.

Putin already knows the tariffs against Russia are punishment for geopolitical purposes. But he also knows they have been conveniently expanded to hurt Russian energy companies worldwide, threatening foreign partners who may think twice about doing business with the likes of Rosneft with or Lukoil, a company that actually has gasoline stations in the U.S.

China has stuck to the language of a trade war and framed the tariff battle in those terms. Come September, when another $200 billion in tariffs are placed on China, they too may come to think that Trump is not using tariffs to inoculate American manufacturing. He is using them to punish countries who do not follow Washington’s preferred foreign policy. With some of these countries, Trump’s trade tariffs work both ways.

Comments are closed.