Trump declared an auction but no bidders turned up

In other words, Trump, having failed so far to bully countries into offering him the one-sided concessions he has been demanding, is effectively extending his deadline and the period for negotiations yet again, indefinitely. So much for “90 deals in 90 days” and the “Art of the Deal.”

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In turns out that trade negotiations are more complicated, and his tariffs less intimidating, that he thought. Most trade deals take years, not months, to negotiate.

What’s particularly significant about the first round of letters, apart from official communications between heads of state being posted on a privately-owned social media site, is that they target two of America’s major trading partners and closest allies.

Japan and South Korea between them generate nearly 10 per cent of US goods imports and are major investors within the US.

Japan is the largest foreign investor in US Treasury bonds, with holdings of more than $US1 trillion, and its auto companies alone have invested about $US62 billion ($A95 billion) in the US auto industry.

South Korean companies have invested close to $US115 billion in the US over the past three years and its Hyundai auto group, by itself, has said it will invest $US21 billion in its US business over the next three years. South Korea has, or thought it had, a free trade agreement with the US.

Both countries are critical to America’s ambitions of containing China’s ambitions in the Asia Pacific region and both have co-operated – at some cost to their companies and economies – with US attempts to curtail China’s access to the most advanced semiconductors, the building blocks for most advanced industrial and military technologies.

It’s insulting to those countries for Trump to say, as he did, that it was “a great honour” for him to send their leaders letters threatening them with punitive tariffs unless they bend to his will or to say that the letters demonstrate “the strength and commitment of our Trading Relationships.”

He’s invited those countries, among America’s closest trade and security partners, to “participate in the extraordinary Economy of the United States, the Number One Market in the World, by far.” They could be forgiven for thinking that they already do.

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Yes, they, like the other countries being targeted with the so-called reciprocal tariffs – Thailand (36 per cent rate), Indonesia (32 per cent), Malaysia (25 per ent) and South Africa (30 per cent) were among the others – have trade surpluses with the US, which in Trump’s mind means they are ripping the US off via unfair trade practices.

The view of most non-MAGA trade economists, however, is that the $US1.2 trillion US trade deficit in goods has more to do with Americans spending more than they produce – living beyond their means – than it does with unfair trade practices.

In the letters, Trump described the deficits as “unsustainable” and a major threat to the US economy and national security.

The reality is that America’s last trade surplus was in 1975, so for half a century America has sustained, and generally prospered despite those trade deficits without them threatening its national security.

Trump’s tariffs will raise the prices for imported goods for consumers, input costs for its manufacturers and disrupt its companies supply chains. Those effects will occur in the near term.

Trump keeps asserting that the countries subjected to the tariffs will pay them but it is America and Americans that will have to absorb the cost of raising the duties paid by its importers from less than the 2.5 per cent effective average rate before Trump embarked on his trade war to something, once the reciprocal and sectoral tariffs are factored in, that could be well above 20 per cent.

While the objective of the tariff policy is ostensibly to coerce foreign companies into investing in domestic manufacturing within the US, even if that were successful (and any success is likely to be relatively modest) it would take years for new plants to be constructed and skilled workforces to be assembled and, almost by definition, the costs of the end products would be higher than those of the imports they displace.

The more likely “success” the policy might have in reducing the US trade deficit is if it ignites stagflation – reduced economic growth but increased inflation – and a recession that pulls US living standards and consumption and the demand for imported goods down.

Trade wars are mutually destructive, with everyone losing. In America’s case, the damage will be self-inflicted.

Trump’s obsession with Tariffs also betrays a misunderstanding of the nature of today’s US economy.

He’s fixated on the trade deficit in goods, but the US economy is services-based. More than 75 per cent of US GDP is generated by the services sector; less than 25 per cent by goods-producing sectors. America has a trade surplus in services.

In the letters, Trump warns that goods that are transhipped – goods that originate in a third country, which means China – will face an even higher tariff. That was a feature of last week’s deal, or at least the framework of a deal, the US announced it has reached with Vietnam, where the “reciprocal” rate of 20 per cent would be doubled for transhipped goods.

He also threatened that, should the countries raise their own tariffs in response to US tariffs, that rate would be added to the rate the US charges.

Japan and South Korea stand out within the list of countries that were sent the Trump letters, most of which are smaller and have smaller trade volumes with the US. The size and nature of their economies and their strategic relationships with the US and its other allies have, over decades, classified them as among America’s friends.

With “friends” like this, America’s “enemies” – China and, potentially, the BRICs grouping of developing economies that includes China and Russia – would be excited by the prospect of America’s self-induced isolation.

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