Trump's new anti-trade push may force retaliation from 2 key allies

For Wall Street, there’s the good Donald and the bad one.

Good, market-friendly Donald wants to cut taxes, slash regulations, and subsidise private investment.

Bad, erratic Donald risks starting either a trade war or a military conflict.

Bad Donald seems to be prevailing for now, and his latest two targets are key US trading partners China and Canada.

This week Trump launched an ominous “investigation” into steel imports from China, suggesting tariffs may be on the way. China has threatened to respond to any action by the United States.

“Unlike many of Trump’s formal trade policy announcements, these moves could have an almost immediate impact. They will probably lead to more trade barriers and barriers that are poorly vetted,” writes Chad Bown, trade economist and a senior fellow at the Peterson Institute for International Economics (where I worked before BI), in the Washington Post’s Monkey Cage blog.

“US consumers will suffer, as well as manufacturers that rely on imported inputs to remain competitive, as will those companies’ employees.”

The official paper China Daily offered an unusually strong rebuttal: “By proposing an unjustified investigation into steel imports in the guise of safeguarding national security, the U.S. seems to be resorting to unilateralism to solve bilateral and multilateral problems.”

“If the U.S. does take protectionist measures, then other countries are likely to take justifiable retaliatory actions against U.S. companies that have an advantage … in fields such as finance and high-tech, leading to a tit-for-tat trade war that benefits no one,” the paper said.

Not content with taking on Asia’s largest economy, the Trump team turned its protectionist sights on Canada, with whom it had vowed to cooperate in a proposed renegotiation of the North America Free Trade Agreement.

The US will now impose preliminary anti-subsidy duties averaging 20% on Canadian softwood lumber imports, according to an announcement from the Commerce Department. The action affects around $US5.66 billion worth of lumber, used widely in construction.

Canada spoke out strongly against the move and vowed to fight it in the World Trade Organisation. Canada’s Natural Resources Minister Jim Carr and Foreign Minister Chrystia Freeland called accusations “baseless and unfounded” and said they would raise the costs of U.S. home construction and renovation.

US homebuilders are some of the biggest buyers of imported Canadian lumber, accounting for about 28% of all softwood lumber purchased in the US, according to the National Association of Home Builders.

Trade wars generally start with a whimper, not a bang. Trump’s latest actions may just be an opening salvo.

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