Tariff tantrums

Rajkamal Rao | Updated on June 04, 2019

US President Donald Trump   -  REUTERS

The world is waiting for the Trump era to end

Donald Trump just terminated India’s preferential trade status under which companies have been exporting over 2,000 products duty-free to the US. India’s fault? American companies have not been provided equitable and reasonable access to India’s markets. This followed his decision not to extend a waiver for India to buy oil from Iran.

Trump also announced a 5 per cent tariff on Mexico, rising to 25 per cent by October, for failing to contain illegal immigration. And he upped American tariffs to 25 per cent on nearly $200 billion of Chinese exports.

According to Trump, previous American leaders have allowed the world to take America for granted by engaging in unfair trade practices. He has cast himself as America’s lone saviour by imposing punitive tariffs on such nations or withdraw America from international pacts.

His results on using trade as a lever have been mixed. The new US-Mexico-Canada agreement, set to replace the old North American Free Trade Agreement (NAFTA), is expected to be “fairer” to the US, but still faces ratification in each country’s parliament. America and Japan have been at it for nearly two years, but while there has been progress, nothing is inked yet.

China has so far bravely weathered all of Trump’s unilateral actions, borrowing heavily to keep domestic industries going, while offering few concessions to Trump. North Korea was promised access to world markets in return for pursuing full denuclearisation. But the two countries are no closer to a deal despite two high-profile summits.

Smart people in each impacted country know that all of these Trumpian actions are under the president’s executive authority and do not have the standing power of law, as in when Congress passes a bill and the President signs it into law. If the next President, to be elected in fewer than 18 months, is not Trump, he/she could easily overturn all these actions.

This is why China appears to be running out the Trump clock hoping that a Democrat in the White House in 2021 would reverse his various orders. EU leaders have already begun counting days to the US presidential election, accepting Trump as a necessary evil whose time in office will end soon.

Europe is actually doing more than just hope. Aghast that Trump unilaterally tore up the Iran nuclear deal to shreds, Europe is building a “Hawala-based” payments system, called Instex, which allows companies to bypass American trade sanctions — and oversight by the US Treasury — altogether.

Under Instex, an Iranian exporter of rugs receives rials from a fellow Iranian importer of German machinery. In Europe, the Belgian importer of Iranian rugs simply pays the German machine tool manufacturer in Euros. Since no dollars cross Iranian borders, Intex cleverly skirts the US-dominated payments system and allows the world to thumb a nose at mighty America.

Another tactic of impacted communities is to stall action by taking Trump to court. Recently, a California company sued in federal court claiming that the US government unlawfully denied the H-1B extension of an Indian employee. This is one of 40 H-1B lawsuits making its way through the courts. The latest bombshell is the possibility that America will begin asking visa applicants to reveal social media information, including passwords, on the DS-160 form used by over 14 million tourists and students each year. Civil libertarians are furious at this “extreme vetting” proposal. It is not yet known what tools they have to stall it.

The writer is Managing Director, Rao Advisors LLC, US

Published on June 04, 2019

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