Nikkei Asian Review

By William Pesek

America’s negotiator-in-chief launched an opening salvo. Donald Trump’s administration last week invoked powers no White House has in a quarter century — and did so to probe Chinese aluminum imports.

Normally, the Commerce Department reacts to specific complaints by U.S. companies. Initiating an anti-dumping case on its own is an aggressive step — and perhaps a harbinger of the Asian trade war Trump long promised.

President Trump’s recent Asia tour temporarily eased worries he would impose tariffs as high as 45%. But two reality checks since should dispel all optimism. One is Trump’s return to a scandal-plagued White House desperate for an international win. The second is frustration that efforts at bromancing China’s Xi Jinping to curb North Korea are not paying off.

Trump’s Twitter feed suggests a caged and fearful leader. As Russia investigations close in on Trump’s inner circle, including son-in-law Jared Kushner, a trade battle could be just the thing. A populist attack on a nation Trump accused of “raping” America would change the subject and delight supporters. The bigger impetus, though, is disappointment that President Xi is not doing Trump’s bidding on Kim Jong Un. Kim’s Nov. 29 test of an intercontinental ballistic missile capable of striking the U.S. mainland proved that well enough.

Until now, Trump thought he could charm Xi into curtailing Kim’s nuclear ambitions. Trump also was willing to hold back to get a giant tax cut plan through Congress. The aluminum case suggests 2018 could be the year of a trade war that Xi, Japan’s Shinzo Abe and other Asian leaders hoped would never come. As Trump’s Commerce Secretary Wilbur Ross said last week: “Unfair trade practices will not be tolerated under this administration.” The “action” over aluminum, he added, “shows that we intend to make good on that promise to the American people.”

Xi’s team expressed “strong dissatisfaction” at a move that, for now, threatens $603.5 million of Chinese imports. Xi’s China, though, is likely to be unbowed. With neither side giving way, imagine how global investors would react if Trump upped the ante and disrupted $577 billion in bilateral trade between the two biggest growth engines. It would devastate the global economy and markets.

Nor should Japan expect to get off easily. Headwinds affecting its two main trading partners could derail the best run of gross domestic product gains in 16 years and slam a Nikkei Stock Average at 26-year highs. Two other wildcards are worth considering here. One, Trump’s basic ignorance of U.S.-Japan trade dynamics. Two, his nascent assault on a World Trade Organization system on which Abenomics is relying to reflate the economy.

Abe got a taste of the former early. On Nov. 18, 2016, the prime minister visited Trump Tower in New York in part to lobby for the U.S. staying in the Trans-Pacific Partnership. Weeks later, Trump abandoned a 12-nation pact Abe spent vast political capital joining. Later, Trump took to Twitter and attacked the weak yen and Toyota Motor, apparently unaware Japanese automakers produce about 4 million vehicles in the U.S. annually. Trump, remember, often conflates China’s predatory trade practices with Japan’s more collaborative approach.

Bad old days

Tokyo’s determination to go ahead with TPP also comes with risks. Himself committed to negotiate a bilateral trade deal with Japan, the thin-skinned Trump might read Abe’s TPP push as disloyalty worthy of retaliation. South Korea is in harm’s way, too, as Trump tears up a five-year-old free-trade pact, perhaps a precursor to upending the 23-year-old North American Free Trade Agreement.

In Danang, Vietnam last month, Trump said: “We are not going to let the United States be taken advantage of anymore. I wish previous administrations in my country saw what was happening and did something about it. They did not, but I will.” But might Trump’s “America First” ideology shake up the WTO, too?

Trump’s worldview is of the stopped-clock variety. In Tokyo last month, he spoke of U.S.-Japan automaker tensions as if it were 1987, not 2017. And his views on China “cheating” America seem stuck in December 2001, when Beijing entered the WTO. Few acts would thrill Trump supporters more than kneecapping an intergovernmental organization the president claims has “taken advantage of this country like you would not believe.” As he told Fox News on Oct. 26, the WTO “was set up for the benefit of taking advantage of the United States.”

With Trump blocking the appointment of new judges to the WTO body acting as the supreme court of trade, things may be about to get ugly. Does the global trade system have problems? Absolutely. Does Beijing, with its massive subsidies for state enterprises and forced joint-venture policy for foreigners, take liberties? Yes. But tossing grenades at a highly indebted and interconnected global economy is a grave threat to growth and stability.

It would also be a pyrrhic victory. Costs for U.S. consumers would skyrocket, bond yields would soar and inflation would increase. What is more, Beijing has some serious leverage: $1.2 trillion of U.S. Treasurys it could dump in nihilistic retaliation (Tokyo has $1.1 trillion).

You would think a businessman famed for a book called “The Art of the Deal” might get that. But an embattled and paranoid politician gunning for enemies, real and imagined, is more apt to lash out. The Trump White House dusting off a trade weapon last used in 1991 seems a bad omen for Asia’s 2018.

William Pesek is a Tokyo-based journalist and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.” He has written for Bloomberg and Barron’s.

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