Shortly after President Donald Trump announced in early December that he was re-imposing tariffs on Argentina and Brazil’s steel and aluminum exports, director of the White House National Economic Council Larry Kudlow said the matter has yet to be settled. Left in limbo, Argentina and Brazil are left wondering: What did they do wrong?
In his tariff-announcing tweet, Trump blamed the two US allies for currency devaluation, which—he claimed—is hurting US farmers. While the twin drumbeats of alleged-currency manipulation and farmer protections are nothing new, in this case, neither the cause nor the likely effects make sense. For one, the decline in the Argentine peso and Brazilian real stem from economic distress not state manipulation. For another, the move (should it go ahead) will undermine the US administration’s long-repeated goal of reducing Chinese influence in the Western Hemisphere. And indeed the US has a trade surplus with both countries.
The Trump administration’s targeting Argentina and Brazil is likely driven more by US-China trade tensions (which will be alleviated in the near-term by the phase one trade deal reached by the sides) than either country’s domestic monetary policy. That’s because China has increased its soybean imports from South America at the expense of US farmers. Soybean producers in both countries—as with other agricultural producers across the hemisphere—have filled the vacuum left by Trump’s trade war with China.
Penalizing Argentina and Brazil economically (albeit not on soybeans) highlights that the Trump administration is as comfortable targeting allies as it is rivals for trade action. Proposed $2.4 billion worth of tariffs on French imports (including wine, cheese and handbags) in response to France’s digital services tax underscore this. Potential US tariffs on European automobiles is another card the Trump administration has demonstrated a frequent willingness to play, drawing promises of US investment and employment, even as Republicans have urged Trump not to act for fear of how the base in key red states might react.
Trump’s tariff tweeting is also a reminder of how deeply the Trump administration has relied on executive authority to conduct its ‘America First’ foreign policy—from tariffs, to sanctions, to the Commerce Department’s ‘Entity List’ designation. Should Trump be reelected in November 2020, we are likely to see more of this executive action-led foreign policy.
Why This Matters
While the Trump administration has repeatedly emphasized reducing Chinese influence in the Western Hemisphere as a central plank in its southern policy, its own trade war with China is having the opposite effect: increasing Latin American producers’ dependence on Chinese markets and investment. Ironically, the potential Twitter-based imposition of tariffs on Argentine and Brazilian steel and aluminum imports (should they come to pass) will only further weaken the US’s role and its allies in the region while strengthening China’s market attraction.
Lindsay Newman is U.S. and Americas senior research fellow for Chatham House. Christopher Sabatini is senior research fellow for Latin America at Chatham House and a lecturer at Columbia University’s School of International and Public Affairs (SIPA).