The Economist Asia Edition - June 09, 2018

62 Finance and economics The EconomistJune 9th 2018

1

2 America’s offended allies are showing

unusual unity. Collectively, their response

looks larger thanthe biggestauthorised by

the World Trade Organisation(WTO) since

its founding in 1995. But its nature is more

notable than its size. Normally,WTOdis-

pute-resolution panels hear legal argu-

ments and issue a ruling before plaintiffs

retaliate. But although theEUand several

countries have filed formal cases, they

seem unlikely to wait for theWTO’s bless-

ing this time.

The quarrel falls into a legal grey area.

The Trump administration is claiming that

it is acting in the name of national security

and that noWTOjudge should be able to

question a country’s own assessment of

that right. Canada, China, theEU, India, Ja-

pan, Mexico and Turkey all say that Mr

Trump’s national-security claim is phoney.

America is instead “safeguarding” its in-

dustry. UnderWTOrules, they say, that

gives them the rightto retaliate. (Canada

and Mexico can claim different retaliatory

rights underNAFTA.) All these claims can

and will bedisputed.

Not that Mr Trump would pay much at-

tention to an adverseWTOruling on his

national-security claim. His administra-

tion is strangling theWTO’s dispute-settle-

ment body anyway, by blocking the ap-

pointment of new judges. He prefers raw

power to rules. Retaliation, even if it bends

the rules, may remind Mr Trump of the

dangers of a power-based system and a

united opposition—even though that is a

risky stance for those who believe that

rules are paramount. “Is this the beginning

of the end of the international trading sys-

tem?” asks Luis de la Calle, a Mexican for-

mer trade negotiator. “I say this is the be-

ginning of the defence of the international

trading system.” 7

“L

OOK at all these bikers...we love the

bikers!” declared the pre-presidential

Donald Trump, surveying a crowd of mo-

torcycle-owners gathered by the Lincoln

Memorial in Washington, DC, in 2016. Rid-

ers of Harley-Davidsons, in particular,

have been among Mr Trump’s noisiest sup-

porters since the early days of his cam-

paign. Riders of “hogs” often see them-

selves as rowdy rebels. Perhaps this is why

many have identified with Mr Trump’s dis-

dain for conventional politics.

Alas, the love affair may be heading for

trouble. Mr Trump’s trade policies have put

Harley-Davidson in a double bind. The

company uses a lot of steel and aluminium

to make its bikes. Although much of that is

domestically sourced, Mr Trump’s tariffs

on imports have led to higher prices for lo-

cally made metals, too, thus raising costs.

And the European Union is poised to im-

pose retaliatory tariffs on a variety of

American exports, including motorcycles

and whiskey. Harley-Davidson had bet on

a continued boom in European sales,

which make up about 16% of its total.

TheEU’s tariffs on Harleys are just one

of several acts of retaliation taken or

planned by America’s trade partners,

some intended to cause political as much

as economic pain. Harley-Davidson is

based in Wisconsin, home state of Paul

Ryan, the retiring Speaker of the House of

Representatives. Kentucky, the turf of

Mitch McConnell, the Republicans’ leader

in the Senate, distilsa lot of bourbon.

Harleys are not the only hogs on the

chopping block. American pork producers

learned on June 5th that Mexico, their lead-

ing export market ($1.5bn last year), plans a

20% tariff on a variety of their products.

Americans typically disdain shoulder, but

Mexicans happily consume the cut in dish-

es such astacos al pastor. These tariffs are

“potentially devastating” for farmers, says

Gregg Hora, president of the Iowa Pork Pro-

ducers Association. Granjas Carroll, a top

producer in Mexico, estimates that prices

there may rise by 15% or more, which it

worries will drive down consumption.

Mexico’s list of threatened tariffs will

bring pain to peddlers of fruit, too. Some

1,300 apple-growers in Washington state,

the leading source of exports, sell between

12m and 15m bushels a year to Mexico.

Todd Fryhover, president of the Washing-

ton Apple Commission, estimates that ex-

ports to Mexico were on track to top $240m

this year. “This new tariff puts that goal in

doubt,” he laments.

Dairy farmers are also complaining. Yo-

gurt is among the dozens of American pro-

ducts, from chocolate to orange juice, in

Canada’s sights. Mexico is targeting

cheese. It is the top destination for Ameri-

can dairy exports; in March, for example, it

bought 8,700 tonnes of cheese. Tom Vil-

sack, a former Secretary of Agriculture

who now runs theUSDairy Export Coun-

cil, a trade body, notes that market instabil-

ity and a lack of clarity on policy, as well as

tariffs, are hitting dairy prices.

The trail of potential harm to compa-

nies—both from America’s tariffs and from

retaliation by others—also shows how glo-

balisation makes a mockery of attempts to

aim tariffs precisely at foreigners. Ameri-

can carmakers and their vendors have

strung their supply chains across the Cana-

dian and Mexican borders. Granjas Car-

roll, a loser from Mexico’s pork levy, is

partly owned byWHGroup, a giant Chi-

nese food producer.

And of course consumers lose, too. The

EU’s proposed tariffs on motorcycles, jeans

and whiskey amount to a cruel tax on

Hells Angels across Europe. The innocent

always suffer. 7

Trade wars (2)

Backfire

WASHINGTON, DC

Some American firms will be hit hard

by retaliatory tariffs

Riding for a fall

T

O ITS opponents, theVoll gel dinitiative

is “suicidal” and a “dangerous experi-

ment”. To its supporters, it is the ticket to a

“fairer and more stable banking system”.

Swiss voters will decide for themselves on

June 10th, when the proposal for sovereign

money, which would rewire the country’s

banking system, are put to a referendum

that, in theory, would be binding.

The heart of the argument is whether

private-sector banks should be able to

create money. In modern economies, most

money takes the form of deposits in com-

mercial banks, rather than the cash in cir-

culation and the reserves determined by

the central bank. And bankdeposits are

mainly created through bank lending.

Lenders can thus lend far more than they

hold in central-bank reserves.

Voll gel dsupporters want to take such

money-creating powers away from banks.

Bank deposits are not as safe as sovereign

money, they say. If a bank collapses, depos-

itors lose uninsured funds. Instead the

public should hold current accounts di-

rectly with the Swiss National Bank (SNB),

the central bank. Banks’ lending should be

funded entirely bytime deposits (savings

accounts) or by borrowing of their own.

Voll gel d’s backers say that bank runs

Sovereign money

How to lend it

A Swiss referendum shines a spotlight

on the way money is created