Trade wars

When US President Donald Trump announced – via a tweet, as is his wont – that he would be imposing tariffs on steel and aluminum imports he added, “Trade wars are good, and easy to win.” He is now learning that his understand of international trade is as deficient as it is in other areas. As a retaliatory measure, China has now announced it will be implementing tariff on 128 products from the US, mostly on meat and fruit products and steel. In total, the tariffs will affect only about $3 billion of trade between the two countries – a mere rounding error when considering that bilateral trade is worth nearly $115 billion per year. But the tariffs seem specifically designed to hurt farmers and industrial producers in the very towns where Trump was able to attract blue-collar white workers to pull off his surprise election win. The measures announced by both the US and China do not yet amount to a trade war. The skirmishes right now amount more to posturing, likely as an opening move in renegotiating existing trade deals. But – mainly because of Trump’s unpredictability – the markets have been spooked enough to cause a major drop in the last few days.

Arguments over trade are a long-standing feature of the US-China rivalry to be the main global superpower. After China announced its tariffs, Trump suggested he could impose even more trade tariffs, triggering a stock exchange slump in the US. The markets are worried that this rhetorical escalation could lead to an all-out trade war. But both countries are co-dependents now, with their economies increasingly inter-linked. China, however, has greater room for maneuver. Trump has alienated the US from its main trading partners. The European Union, which exports far more steel and aluminum to the US and China, is considering its own retaliatory tariffs and may even approach the World Trade Organisation to sanction the US. China, meanwhile, has built new trading alliances and routes throughout Asia with its One Belt, One Road Initiative. It is also considering moving closer to India as the US becomes more unreliable. The US trade war threats are seen by China as a way to pressure it to crackdown on piracy and intellectual property theft as a way of protecting its own industries. But US companies are so enthralled by the large Chinese market that they would be worse hurt should more trade barriers be put up between the two countries. In any trade war, there will ultimately be no winner but Trump may be about to find out that the US stands to lose more than most.