Midterm test for Trump’s boisterous trade policy
Three possible scenarios for US trade as the elections approach
Donald Trump’s “America first” trade policy, which has shattered the mould of Washington’s international economic relations, will be a ballot issue when Americans go to the polls for the midterm elections on November 6.
Conclusions will be drawn inside the White House about the political effectiveness of Mr Trump’s tariffs battle with China, his deal with Canada and Mexico to revamp Nafta, and his talks with the EU and Japan. Here are three possible scenarios I have picked out for the post-midterm world of US trade policy.
1. Trump loses and backs down
The chances of a “blue wave” sweeping across America appear to be receding, but there is still a good chance that Democrats win control of the House of Representatives and come close to winning the Senate (a takeover of the upper chamber is still possible, but unlikely). Such a defeat would make Mr Trump doubt whether the hard line on China, and the months of rhetoric against Canada, Mexico, the EU and Japan on trade, have reaped the political dividends that hardliners inside his administration promised. The commercial peacemakers — such as Steven Mnuchin, Treasury secretary, and Larry Kudlow, director of the National Economic Council — would be strengthened, and the White House posture could become more conciliatory. The US president could not reverse course immediately, but over time he would find a way to reach a truce with China, drop the threat of car tariffs against US allies and make a constructive bid to reform the World Trade Organization.
2. He wins and doubles down
Mr Trump will probably try to depict any November 6 outcome as a win. But if Republicans manage to hold on to the House, and almost certainly the Senate, this near-complete electoral vindication will surely encourage him to double down on trade. The White House would feel little incentive to strike a quick agreement with Beijing, on the grounds that American voters appear willing to pay the short-term price of economic conflict with China. Tariffs on Chinese imports would increase from 10 to 25 per cent in January, and the White House would eventually impose levies on all Chinese goods. Mr Trump would impose national security-related tariffs on foreign cars, dealing a huge blow to trade relations with the EU and Japan. He would even move to pull the US out of the WTO, confident that America does not need the Geneva-based body.
3. A midterm draw, and he stays the course
If Mr Trump loses the House but wins a few seats in the Senate — with both Republicans and Democrats claiming victory — he will face more scrutiny of his trade policies in Congress, so will have to be more careful. He would increase the rate of US tariffs on Chinese imports, perhaps to 25 per cent, but not across the board. The trade war with Beijing would continue, but on a slow burn. Mr Trump would try to smooth over tensions with US allies like the EU and Japan, and even consider removing steel and aluminium tariffs on Canada and Mexico. He would also delay deciding on car tariffs to maximise his negotiating leverage, keeping everybody waiting. No conclusive deal would be reached with either Brussels or Tokyo.
If I had to bet today, I would pick scenario three. I could also see situations in which Mr Trump loses and increases the tariffs pressure in anger, or wins and magnanimously backs off.