On The Money: Trump opens surprise new front in trade war | Trump official proposes tariffs on $2.4B in French goods | US manufacturing contracts for fourth straight month

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THE BIG DEAL–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. I explain the decision here.

 

The background: 

  • 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.

 

Reactions: 

  • “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.”
  • 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 White House also took aim at France on Monday over its digital services tax, proposing $2.4 billion in tariffs on French goods in response.

The U.S. Trade Representative on Monday said that it has determined that France’s digital services tax discriminates against U.S. companies, and is proposing tariffs of up to 100 percent on French wines, cheeses and other key exports.

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“USTR’s decision today sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on U.S. companies,” U.S. Trade Representative Robert Lighthizer said in a news release. 

The Hill’s Naomi Jagoda fills us in here.

 

LEADING THE DAY

US manufacturing contracts for fourth straight month as trade war drags on: The U.S. manufacturing sector contracted for a fourth consecutive month in November, according to industry figures released Monday by the Institute for Supply Management (ISM).

The ISM’s Purchasing Managers’ Index measured 48.1 percent, compared with October’s 48.3 percent. Any readings below 50 percent indicate contraction.

New orders and employment were down, as were inventories and new exports. Measures for production and supplier deliveries also fell below the 50 percent threshold but showed improvements from October.

While the overall U.S. economy remains strong — with low unemployment and robust consumer spending — the weak spot in manufacturing could pose a challenge for President Trump as he seeks reelection next year. The Hill’s Niv Elis explains why here.

 

Trump blames the Fed…again: Trump again accused the Fed and Chairman Jerome Powell of hindering U.S. manufacturers by artificially inflating the value of the dollar. The president has argued for 15 months that the Fed has kept interest rates too high and should flood the economy with cheaper money to manipulate the value of the dollar. 

  • Trump insists that the Fed should “match” efforts from central banks in Europe and Asia to cut interest to near-zero or negative levels despite the relative strength of the U.S. economy. The claim is only one of several accusations of economic sabotage Trump has lobbed at the Fed since July 2018. 
  • Powell, reflecting the consensus of most economists, pushed back on Trump’s demand in congressional testimony last month. The Fed chairman said it would be inappropriate for the bank to offer crisis-level stimulus while the U.S. economy remains steady.

 

GOOD TO KNOW

  • Rep. Mark Walker (R-N.C.) announced Monday that he is planning to mark “Giving Tuesday” by reintroducing his legislation that would allow more people to claim a tax deduction for charitable contributions.
  • The U.S. may face a French fry shortage due to a poor potato crop caused by cold and wet weather this year, Bloomberg News reported Monday.
  • Fiat Chrysler and the United Auto Workers union reached a tentative four-year labor deal, both groups announced Saturday.

 

ODDS AND ENDS

  • Secretary of State Mike Pompeo on Monday warned against European countries allowing companies with Chinese links from constructing 5G networks across the continent ahead of a global technology conference.

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Written by Alan Smith

Alan Smith

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