- The Trump administration has pulled back from its threatened extension of the trade war over Airbus subsidies, and given a modest amount of ground.
- The target of Scotch whisky and textiles continues, and is intended to cause pain, leading to political leverage within the UK.
- That much seems to be working, though tariffs also cause pain to the US, because that’s where customers have to pay more.
Blessed are the Greek cheesemakers, in both “Life of Brian” and US trade wars.
Those Hellenic halloumi and feta folks have reason to celebrate, alongside the thousand-plus people who bake shortbread at Walkers of Aberlour on Speyside. Its exports to the USA peaked at more than 5,000 tonnes a year.
Both categories were removed last night from the list of Washington’s targets for 25% tariffs, as a $7.5 bn retaliation for European and UK subsidy of Airbus.
But there was an equal price to be paid elsewhere. Fruit jams from France and Germany have had the tariff imposed on exports to the US.
Why? We don’t know, because the process is opaque, but you can be fairly confident such choices are not random or accidental. They fall where US trade experts judge that economic pain equals political leverage.
The US Trade Representative (USTR), Robert Lighthizer was required on 12 August to provide an update on the measures it introduced last October.
He had threatened to add a further $3.1bn to the tally – allowed to do so by a further ruling of the World Trade Organisation.
(Yes, that’s the same WTO that the Trump administration is seeking to undermine, by refusing to appoint anyone to the appeals tribunal, thus rendering it inquorate.)
But the USTR pulled back from the $10.6bn total, as a show of goodwill.
He has to balance several factors:
- the European Union is pursuing a counter-claim against the US for its subsidies to Boeing, and expects to get WTO approval for punitive tariffs in the next couple of months:
- Airbus recently changed the terms of its French government loans, as a concession to US demands, though the USTR says that does not go far enough.
- the Trump administration needs to give something to UK trade secretary Liz Truss, who was in Washington last week for the third round of talks on a post-Brexit free trade agreement, and shortbread looks like the cheapest giftpack it could offer her.
- also, the US is in election season, and while tariffs hurt EU and UK exporters, they also mean American consumers have to pay more. This is not a good time to be antagonising the feta-loving Greek-American proprietors of diner restaurants in Pennsylvania, Ohio and Michigan.
So there’s a stop on the threatened extension of tariffs to blended Scotch whisky (worth around £650m per year in US trade), also to Scottish salmon (£178m in the most recent annual figures) and UK gin (70% of it made in Scotland), or to an increase in the level of tariff above 25%. For now, anyway.
But with the exception of UK “sweet biscuits” and Greek cheese, the tariffs in place since last October remain there – also across EU and UK cheese, pork, olives and a strange selection of oddly shaped targets ranging from British men’s suits and women’s pyjamas to German power tools and waffles.
For Scotch whisky, that is affecting sales well beyond the single malt and liqueurs covered by the tariffs. Diageo’s recent results showed, perversely, that US purchase of single malt was slightly up in the year to June, but blends are down sharply, and the Johnnie Walker brand in particular.
Part of this is due to the 17% shrinking in world trade with the Covid-19 crisis, but at a drop of 30% or £30m per month, the trade war appears to have nearly doubled the impact on Scotch whisky and cashmere. Sweet biscuit exports have fallen £2.5m in 10 months.
The American calculation is that this places pressure on the domestic politics of the UK, just as the EU is preparing to hit Donald Trump where it hurts electorally. In the separate dispute over steel and aluminium trade, it has already imposed tariffs on Harley-Davidson motorbikes and US whiskey.
While US distillers find common cause against tariffs with their commercial rivals in the EU and UK, Mr Lighthizer is not being disappointed by the reaction of the Scotch Whisky Association.
The distillers’ representative body is usually diplomatic. Why else choose ex-ambassadors to lead it? Karen Bett’s predecessor as chief executive, David Frost, was so diplomatic that he left to become Boris Johnson’s right hand man in Brexit talks and national security.
But that veneer has been stripped back, as Ms Betts tears a strip off the UK government, for “woefully inadequate” compensation to Scotch distillers for being caught in the crossfire of a dispute that was not of their making.
“It has taken the UK government a full six months after the UK left the EU to start to tackle tariffs directly with the US government, which seems to us inexplicably slow”, she says.
“The UK government must now focus its energy on developing a clear strategy for settling the UK share of the Airbus/Boeing and steel and aluminium disputes with the US, rather than looking to the EU to do this for us.
“Negotiations on a free trade agreement with the US will not solve tariffs and will not be credible while they remain in place. While we welcomed Liz Truss’ visit to the US last week to talk directly to Robert Lighthizer, it was clearly too little, too late.”
That’s a sharply worded message, to remind Ms Truss and other UK ministers that their claims of special new trade deals for “global Britain” have now reached the point where they must move from rhetoric to reality.