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Opinion

June 5, 2018
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Taming Trump’s trade war

Opinion

June 5, 2018

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After coming down hard on China, the unpredictable Donald Trump has turned his guns towards Washington’s inveterate allies in the ongoing trade war.

The pernicious tentacles of this war are no longer confined to Beijing and Washington, but are engulfing other important economic areas of the world. Canada, Japan, Turkey, Mexico, South Korea, Brazil, the EU and a number of other countries are going to be part of this trade war. Experts believe that the world is inching far closer towards a full-scale trade war now than it did at any point since the 1930s.

In a recent development, American allies were flabbergasted by the announcement made by US Commerce Secretary Wilbur Ross that EU companies would face a tariff of 25 percent on steel and a duty of 10 percent on aluminium. The announcement has sent shudders through the global financial markets, creating a fear of escalation.

Jean-Claude Juncker, the president of the European Commission, promised immediate retaliation. Even docile Canada and pliant Mexico are daring to challenge the mighty Washington over this life and death issue for their economies. The decision has also alarmed London, the loyal ally of Washington for decades. The British government was expecting to reach a trade liberalisation agreement with Washington after Brexit. But now, London is also threatening to take counter-measures.

The bitter reality of the material world is quite clear: when it comes to the economy, states put everything aside and fiercely defend their commercial interests. The poodle turns into a furious lion, the docile emerge as shrewd and clever while the pliant lose no time in becoming defiant. The furious statements of American allies clearly indicate the fragility of relations between capitalist countries based on commercial interests.

Liam Fox, the international trade secretary, said that Britain would not rule out counter-measures or take Washington to the WTO, which arbitrates on global trade disputes. French President Emmanuel Macron termed the US tariffs as illegal and a mistake while Canadian Prime Minister Justin Trudeau issued an immediate like-for-like response – announcing tariffs of up to 25 percent on US imports worth up to Canadian dollars 16.6 billion (£9.6 billion), which was the total value of Canadian steel exports to the US last year. The tariffs will cover steel and aluminium as well as orange juice, whiskey and other food products. Mexico also denounced the move, saying that it “deeply regrets and disapproves [of]” the US decision.

Intellectuals in Western capitalist countries have contemptuously rejected the idea that the underlying factors behind any dispute are economic. But even the American allies and leaders of the free world admit that it is the economy that matters. The US has been accused of using the pretext of national security to impose tariff on steel and aluminium. Under the veneer of national security legislation, it is the protectionist philosophy of the American state that is at work. Even America’s closely ally Canada can understand it – let alone its rivals.

The world was scrambling around the ways to grapple with the effects of the China-US trade war. But this new front in the economic war is likely to push the globe towards more financial volatility, which may have catastrophic political consequences. In late March, the American president targeted imports from China, which have dramatically expanded in recent years.

Up to $60 billion in Chinese exports now hang in the balance, as the US ramps up tariffs against major trading partners. China responded in kind by targeting as many as 128 American products, mostly in the realm of food and agriculture. While the Asian powerhouse imposed an additional 25 percent tariff on recycled aluminium and pork from America, wine, nuts, fruits and seamless steel tubes were hammered by an additional 15 percent tariff rates.

The US-China trade war created fear among other major economies. For instance, according to the Financial Times: “German manufacturers are worried that tariffs on Chinese exports to the US will end up reducing demand for the German-made machines that are used in Chinese production. Fewer Chinese toys, for example, bought by US consumers means fewer German toymaking machines bought by Chinese investors”. The Financial Times also notes that: “[a] slowdown in the Chinese economy due to US tariffs may mean fewer tourists visit London and wealthy Chinese industrialists buy fewer Land Rovers and Aston Martins”.

In Europe, manufacturers fear that if less Chinese production is destined for the US, it may end up in Europe instead, lowering prices for consumers but making it difficult for producers to compete. This means that European markets could be flooded with Chinese goods, harming the economy of the bloc greatly.

Many feel that if the tariff duty against American allies is just confined to steel and aluminum, it may not greatly hurt Washington’s friends because exports of steel and aluminium to the US comprise just 0.3 percent of worldwide goods exported from the EU and represent a tiny 0.05 percent of the bloc’s GDP. But if the situation escalates, the consequences could be dire.

If Washington and Brussels ramp up various tariffs, including those on cars, the impact could knock 0.4 percent from US growth and 0.3 percent from the EU’s growth. The US has a trade in goods deficit with the EU of about $38 billion, with about $78 billion exported to Europe from the US, and $116 billion going the other way. Should the tariffs be raised by 10 percent above the proposed levels, the Organisation for Economic Co-operation and Development estimates that it would reduce global trade by about six percent, which could be catastrophic at a time when the global economy is already slow.

This scenario is quite interesting in the economic history of the world. Socialist China is advocating the abolition of tariff and duties while the champion of the free market economy– the US– is slapping state after state with duties and tariffs. Earlier, it was only between Beijing and Washington. But now, Russia, Canada, Mexico, Brazil, India, Turkey, Japan, the EU and a number of other countries are on one side while the US is on the other.

Russia and China are already politically aligned and have been cooperating for years to challenge America’s hegemony. The EU and some other capitalist countries threw their weight behind Washington to counter the rising power of Beijing. They extended unflinching loyalty to Washington over Ukraine and Georgia, which offended the irredentist Moscow. They were again allied with Washington over the Syrian Civil War. European states and other American allies once again demonstrated their unwavering support for the US over the turmoil in Libya.

But in return, the US refused to convince Tel Aviv to tame its unbridled and irrational fury against Palestinians, which created considerable anger in European capitals. As if this was not enough, Trump unabashedly scrapped the Iranian nuclear deal that the world power hammered out after an arduous series of talks with a recalcitrant Tehran. This not only damaged the political credibility of European leaders but also jeopardised the investment of various Western firms, which were estimated to be around $15 billion.

Before Trump’s America created more uncertainties in a volatile economic and political world, Russia, China, Canada, Mexico, Brazil, India, Turkey, Japan, the EU and all those countries that are apprehensive about American designs and want some level of stability – both political and economic – should force Trump to tame his wild temper that is pushing the world towards a precarious stage. It was economic rivalries that pushed the world towards the conflagration of the First World War between 1914 and 1918. In addition, it was the scramble for markets that led to the Second World War between 1939 and 1945.

The saner elements in the capitalist world should come forward and ally with Moscow and Beijing to prevent Washington from taking unilateral financial, militaristic and political decisions that have global significance and the potential to jeopardise global peace and security.

The writer is a freelance journalist.

Email: [email protected].com

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