A trade war might be looming, as Trump is increasingly putting tariff money where its money was during his election campaign. It started with Trump’s plan to slap tariffs on steel and aluminum imports, in order to dismantle America’s “very stupid” trade deals signed by his predecessors. This prompted a firm response from America’s trading partners, as well as the IMF and WTO. European Commission President Jean-Claude Juncker warned that the EU is likely to hit back by imposing import restrictions on famous U.S. staple products, such as whiskey from Kentucky, Florida orange juice and Harley-Davidson motorcycles. In turn, Trump threatened to impose new tariffs on European cars, a major source of America’s almost $100 billion trade deficit with the European Union.

Things worsened when Trump signed an executive memorandum that would impose tariffs up to $60 billion in annual imports from China, claiming that this is “the first of many trade actions”. The tariffs are aimed at imports from – among others – the aerospace, ICT and robotics and machinery sector. Although the tariffs are said to be retaliatory measures against IP theft by Chinese companies, Trump’s trade director Peter Navarro has said that the U.S. is “strategically defending itself against economic aggression”. Considering this, the tariffs seem to serve a broader White House objective, namely to disrupt a high-level Chinese strategy called “Made in China 2025”. Since Trump was elected U.S. President and spelled out his “America First” policy, a trade war has always loomed over the global economy. However, during Trump’s first year in office, there were few sings of this happening. Especially as the global economy showed decent and synchronized growth, and world trade accelerated, with the U.S. economy especially booming. As a result, Trump seemed to focus his political attention more on other, non-economic policy goals, like his Twitter war with Kim Jong-Un or barring Muslim travellers’ entry to the U.S.
Trump’s trade rhetoric comes at a time when he is shaking up his initial administration.
#firingFriday is already trending on social media as Trump’s Cabinet turnover breaks a 100-year old record, while the senior staff turnover is incomparable to previous administrations. In the past few months, some of Trump’s most senior advisors and Secretaries either were ousted or resigned, like Tillerson, Bannon, McMaster, Cohn and Bannon, Chief of Staff John Kelly might be next. Whereas Trump’s administration has already been called an “adult day care center”, it now seems that the most senior officials who were considered to be keeping Trump somewhat in check are leaving the White House.
The internal rift that seems to be unfolding within the White House will have clear ramifications for America’s foreign and economic policy. Currently, China and Iran hardliners and free trade and globalization criticasters feature in top economic and foreign policy positions in Trump’s administration, like Peter Navarro, Wilbur Ross, and Robert Lighthizer, Mike Pompeo, and John Bolton. As his power in the White House is consolidated by having allies in top positions, Trump seems to be moving into a new period of his political career with a renewed focus on America’s trade deficit. And after the reshuffling and firing, the next chapter of Trump’s America First program might show more unpredictable and blunt moves in the future. With the abundance of anti-trade and anti globalization anti-free trade allies, a few dossiers are at risk of being torpedoed by Trump. First of all, countries that run large trade surpluses with the U.S. are in danger, especially Japan and Germany. The U.S. runs its second largest trade deficit with Japan, although Japan is reliant on crucial U.S. imports, like agricultural products and increasingly American liquefied natural gas (LNG). Furthermore, the core of Germany’s trade surplus with the U.S. consists of automobile and aircraft exports, both highly symbolic industries that Trump wants to ‘make great again’. In addition, NAFTA negotiations will be more troublesome for Canada and Mexico, but mostly for Mexico, which runs a larger surplus, mostly in automotive industries. Lastly, in the foreign policy domain we can expect a tougher U.S. stance on the Joint Comprehensive Plan of Action with Iran, especially as Mike Pompeo has replaced Rex Tillerson as Secretary of State and John Bolton is going to replace Herbert McMaster as National Security Advisor. Hence, we foresee a less hawkish stance on Saudi Arabia, as is already reflected in the pledges and deals signed during the three-day visit by Mohamed bin Salman to Trump last week.

RISKS MARKED ON THE RISK RADAR AS NUMBER 2:
U.S. TRADE WAR, PROTECTIONISM

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