Washington: With President Donald Trump threatening to slap tariffs on goods from Mexico, his transformation of the Republican Party's trade policy looked almost complete.
Republican lawmakers usually don't like tariffs. They're viewed as a tax on consumers and unwanted government intervention in free trade. But many Republicans, unwilling to buck Trump, were prepared to follow the president's lead and support 5 per cent tariffs on Mexico in his dispute over illegal immigration.
President Donald Trump responds to a question from the media as he walks into the White House on Friday, local time.Credit:AP
It's a crossroads for the GOP as the White House is taking the party in a new direction, with Trump's tariffs on imports of steel and aluminum and goods from China and other allies.
Trump announced late on Friday, Washington time, that he had reached an agreement with Mexico to indefinitely suspend threatened tariffs. But the threat of tariffs alone had sent ripple effects into a jittery economy.
Meanwhile, in back-to-back speeches at an investment conference on Friday, the leaders of Russia and China cast themselves as the champions of free markets and global trade – an overt show of opposition to what they portrayed as the United States' retreat into protectionism.
Chinese President Xi Jinping spoke expansively about his country's firm support for globalisation and open borders, saying that "we all must work to bring about a harmonious world."
If you are unhappy with fleas in your fur coat, you should not throw the fur coat in the oven. The multilateral trade system has to be protected.
In his speech, President Vladimir Putin took a much darker turn, hinting that trade wars could turn into real wars. He argued the United States, after decades of "pretending" to promote free markets, has been turning its back on them because powerful economic competitors had emerged, threatening America's dominance.
Together, the two leaders' remarks highlighted the strengthening ties between Russia and China as their respective relations with the United States sour.
Western countries, led by the United States, have imposed sanctions on Russia in the wake of election interference, a military incursion in Ukraine and a series of human rights abuses. Since early 2018, the Trump administration has placed tariffs on more than $US250 billion ($357 billion) worth of Chinese imports and has threatened a further round on roughly another $US300 billion worth of goods, saying China has engaged in unfair trade practices.
Trump has often turned to tariffs as a way to shape geopolitics. The threatened tariffs on all imports from Mexico was his way to curb the flow of migrants crossing the border.
On Friday, Xi argued that nations must preserve and improve trade rules rather than throw them out over what he suggested were minor irritants.
Russia and China: new best friends. on free trade.Credit:AP
"If you are unhappy with fleas in your fur coat, you should not throw the fur coat in the oven," he said, according to an official translation. "The current multilateral trade system has to be protected."
Certainly, not everyone benefits from a level playing field, Xi added wryly, arguing in defence of the world's existing trade rules that allow for low tariffs, once propped up by the United States.
The debate over tariffs on Mexico catapultrf Republican lawmakers into new terrain of using tariffs as a negotiating tool in an unrelated dispute. The tactic runs counter to long-held Republican Party views on trade – prioritising free markets – and is pushing Republicans, particularly those who will be running for re-election alongside Trump in 2020, to fall in line.
"I'm a free trader but I want equal access," said Republican senator David Perdue, a former Fortune 500 business executive and close ally of Trump.
"What we're talking about here is trying to change behaviour. Here, we need the Mexican government to help us with this avalanche of people that's coming."
Said Florida Republican Rick Scott: "I don't like it, but I'm going to support the president … I want border security."
As Trump returned on Friday from Europe, he announced on Twitter that, "I am pleased to inform you that The United States of America has reached a signed agreement with Mexico.
"The Tariffs scheduled to be implemented by the US on Monday, against Mexico, are hereby indefinitely suspended. Mexico, in turn, has agreed to take strong measures to stem the tide of Migration through Mexico, and to our Southern Border."
During negotiations in Washington, Mexican officials agreed to deploy 6000 National Guard troops to the Mexican border with Guatemala to help control the flow of migrants.
Meanwhile the tariffs already imposed are already having an economic effect.
Hiring slowed sharply in May as companies in industries hardest hit by the escalating trade war hesitated to bring on new employees.
The US economy added 75,000 jobs last month, a significant pullback from 224,000 jobs added in April, the Labor Department reported on Friday. The slow growth was the biggest red flag yet that the economy is under strain. The unemployment rate remained at a five-decade low of 3.6 percent, but wage growth disappointed, another sign of fading momentum.
The hiring fizzle could put pressure on Trump as faces off in trade negotiations with some of the country's largest trading partners.
Ever since President Ronald Reagan, there has been an "inexorable movement" within the Republican Party towards free trade, culminating in passage of the North American Free Trade Agreement, or NAFTA, said Tim Phillips, president of Americans for Prosperity, a pro-free market group backed by the conservative Koch brothers.
But that's changing under Trump, and it's scrambling traditional alliances between Republican lawmakers and America's business community, putting both on uncertain footing. Trump wants to do away with NAFTA – the new US-Mexico-Canada deal had been heading toward a vote in Congress but could be jeopardised by the tariffs – and he has shelved the Obama-era proposed Trans-Pacific Partnership with more than a dozen nations.
"We've got a long road ahead of us to bring that orthodoxy back," Phillips said.
Plenty of Republicans, though, are resisting Trump's transformation. Those from agricultural, manufacturing and border states are particularly opposed to the tariffs on Mexico. Kansas senator Pat Roberts called tariffs "a really awkward thing.
"And tariffs are like shattered glass. You never know where it's going to end."
AP, The Washington Post, The New York Times
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