Trump opens new front in trade war in surprise move

President Trump on Monday announced plans to impose tariffs on steel and aluminum from Brazil and Argentina, opening a new front in his global trade war even as he seeks to resolve other trade disputes ahead of the 2020 presidential election.

Trump announced on Twitter that he would levy tariffs after imposing quotas on steel and aluminum from Brazil and Argentina in early 2018. While both the quotas and the tariffs they would replace were issued under national security powers, Trump said Monday he was acting in response to the sliding value of each country’s currency against the dollar.

“Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers,” Trump tweeted.

Trump in March 2018 levied tariffs of 25 percent and 10 percent on steel and aluminum, respectively, imported from Europe, Canada, Mexico, China and several other nations. The White House issued those tariffs under Section 232 of the Trade Expansion Act, which empowers the president to impose duties on imports to protect U.S. national security.

While Trump targeted some nations with direct tariffs, the president instead applied quotas to Brazilian and Argentinian steel and aluminum. The restrictions limited the amount of steel and aluminum each nation could sell to the U.S. but gave their domestic producers increased profits through higher prices.

The White House trade office has not yet published a formal notice to increase tariffs, even though Trump tweeted Monday the hikes would be effective immediately. Even so, Trump’s surprise move to penalize two ailing economies, including one of a close ally, surprised trade experts.

Trump’s targeting of Brazil stunned some trade watchers because of his apparently close relationship with Brazilian President Jair Bolsonaro. Bolsonaro, who has been frequently compared to Trump, has forged close ties with his U.S. counterpart and appeared stunned by the announcement, according to The Washington Post.

“If necessary, I’ll call Trump. I have an open channel with him,” Bolsonaro told reporters in Brasilia, according to the Post.

Trump’s announcement also raised questions about the success of his broader trade agenda amid fights with China and the European Union. The president has been eager to cement a preliminary trade deal with China and secure congressional approval of a rebooted North American Free Trade Agreement (NAFTA) to bolster his support in industrial Midwestern states crucial to his 2020 reelection bid.

Trump has sought to downplay the blowback of his trade policies for farmers and manufacturers by pointing to the success of the broader economy under his watch, in particular the stock market. The president touted the steady rise of the stock market in his Monday announcement, but the move caught markets off guard, with the Dow Jones Industrial Average dropping 268 points despite strong Black Friday weekend sales.

The steel tariffs were not the only trade move Monday. After markets closed, the U.S. Trade Representative (USTR) said it had determined that a French tax on digital services unfairly targeted American tech companies and proposed tariffs of up to 100 percent on $2.4 billion of French products.

While Democratic lawmakers say they are eager to approve the new NAFTA and could do so within weeks, Trump’s prospects in the U.S.-China trade war are far less certain.

Trump on Friday signed a bill to condemn China’s attempts to stifle pro-democracy protests in Hong Kong after expressing concerns it could impede trade talks with Beijing.

Trade watchers sought to make sense of Monday’s moves.

Imposing new tariffs on other countries “could be a way” for Trump “to show that he’s willing to keep being tough without actually hitting China directly, which could be politically unfeasible at the moment,” said Rachel Pierson, managing director and head of research at Beacon Policy Advisors.

“The [U.S.-China] relationship is fragile now, and there’s been some talk that trade discussions between the two countries have stalled.”

Pierson also suggested that the tariffs could be an attempt to undercut Brazil and Argentina as the countries fill the void left by American farmers in the U.S.-China trade war.

Trump is trying to finalize a preliminary trade deal with China to ease tariffs on Chinese goods in exchange for Beijing increasing purchases of U.S. crops. American farmers have lost billions in sales to China as the country has turned to South America to satisfy its voracious demand for soybeans.

“This could very well be more about China than Brazil and Argentina,” said James Lucier, managing director at Capital Alpha Partners, a Washington, D.C., policy advisory firm.

“They are trying to negotiate a deal whereby China buys large amounts of crops, soybeans in particular,” Lucier continued. “The extent that Argentina and Brazil can undercut us on price given their currency, that may be an issue with the White House.”

Trump has long accused other nations of hurting the U.S. by devaluing their currencies against the dollar, making their products relatively cheaper in foreign markets. While both the Argentine peso and the Brazilian real have slumped in 2019, Lucier said the causes are likely due to domestic economic issues in each country, not an attempt to underbid the dollar.

“It’s basically the White House is making an example of Brazil and Argentina that it will not tolerate countries who let their currency depreciate,” Lucier said, “even if it’s not obviously an intentional policy.”

Neither Brazil nor Argentina were listed as currency manipulators in a report issued by the Treasury Department in May. The department has also not labeled either nation a currency manipulator through an independent announcement, as Treasury Secretary Steven Mnuchin did in August after the Chinese yuan slipped below a 7 to 1 exchange rate with the dollar.

But a formal declaration hasn’t stopped Trump from boosting tariffs to curb alleged currency manipulation before. The president temporarily hiked tariffs on steel and aluminum from Turkey in August 2018 as the Turkish lira plummeted amid a domestic financial crisis.

Trump reversed his decision in May after Turkey released a jailed American pastor, but the federal Court of International Trade ruled last month that the president violated his tariff authority by increasing those tariffs beyond the designated timeline in Section 232.

That ruling could raise questions about Trump’s latest move.

Pierson said that the court ruling against Trump over tariffs on Turkish goods makes the president’s decision to target Brazil and Argentina “vulnerable” to a legal challenge.

“When you just lost the case on Section 232, that seems to limit his power to do this,” Pierson said.

Updated at 6:14 p.m.