President Donald Trump’s controversial tariff plan amounts to open war on America’s trading partners, who will certainly strike back, according to a leading economist.
Trump’s decision to set taxes of 25 percent for steel and 10 percent for aluminum will invite “fairly strong retaliation from trading partners around the world, both targeted and unilateral actions,” Cornell University Professor Eswar Prasad told CNBC.
“One lesson that many of America’s trading partners have learnt is that they need to use surgical strikes to make sure there is political pain exacted on the U.S. government,” he continued.
Any redress taken by the international community could follow the White House’s lead of bypassing the World Trade Organization, he added: “It could get pretty ugly pretty soon.”
For instance, Canada might disrupt the ability of U.S. businesses to use their supply chains effectively, Prasad noted.
“The European Union has already talked about targeting very specific products from the U.S., China has talked about limiting soybean imports and certain high-tech equipment,” he continued.
Canadian officials have already pledged to respond with their own measures, but didn’t specify details. Meanwhile, European Commission President Jean-Claude Juncker has said the bloc will “react firmly and commensurately” to defend its interests.
Washington’s tariffs are based on Trump’s belief that the world’s largest economy is a victim of predatory trade practices by countries such as China.
Thursday’s news, however, “ends up targeting America’s close trading partners and allies rather than China, which only gets hurt indirectly,” Prasad said.
Indeed, Canada and Brazil are likely to bear the brunt of steel tariffs, according to a 2017 report from the U.S. Department of Commerce.
By jeopardizing long-standing trade alliances, “the U.S. is really undercutting the multilateral rules of engagement and creating the sense, even among its traditional allies, that it no longer will be a reliable and trustworthy partner in terms of trade,” Prasad warned.
