The Financial Express


Trump & trade-war: Shifting into the unknown  

| Updated: March 12, 2018 22:53:10

Trump & trade-war: Shifting into the unknown   

Trade has rarely involved fret-free relations between partners; and the more partners a country has, the higher the degree of bickering and skirmishes. Yet, when push approaches shove, disputing countries have generally held the fire. That, in a nutshell, has been the story of multilateral trade since the General Agreement on Tariffs and Trade (GATT) was adopted in 1947 in Geneva. Within that framework, by extending Article XXIV every which way any country could, all sorts of lesser agreements have also flourished alongside the multilateral - from bilateral deals and customs unions to regional and preferential trading compacts.

Whatever paradigm these belong to in this post-World War II neo-liberal era, they have rarely come so close to a disruptive juncture as they did on March 01, 2018, when the US president slapped a 25 per cent tariff on steel and 10 per cent on aluminum (and then went on to threaten Europeans with automobile protection only three days later). He argued how - since these constituted the sinews of a country's viability - inexpensive imports were challenging the very foundations of the United States as a country. Even if we excuse his hyperbolic style, the countries/regions directly hit by this arrogant display of not just power, but a false power claim, are precisely the type affronted the most by the new US threat.

Canada and Mexico in North America, the European Union (EU), as well as China, Japan, and South Korea in Far-east Asia will face the brunt of the new measures, but among them, Canada and the European Union top the list of aggrieved countries. Across the Atlantic, the European Union has already called for commensurate responses, with Harley Davidson motor-cycles and Levi clothing among the US exports to face retaliation.

Tit-for-tat of this kind among two of the world's pre-eminent trading zones rarely eases without wreaking havoc. Should such posturing spread to other products, a full-fledged transatlantic trade war might unleash itself, much like competitive farm products almost did during the 1980s. In fact, GATT's Uruguay Round was stalled for the longest time ever, from 1986 to 1993, just because of farm disputes, among other acrimonious trade exchanges. That it was compromised sufficiently to produce the 1994 Marakkesh Accord, and thereby the 1995 World Trade Organisation (WTO), is no relief consideration: farm goods then were a small proportion of transatlantic trade, if not overall global trade; with manufactured goods, the industrial sinews Trump's referenced, get placed on the line, with possible results of pure market anarchy.

No wonder the trade retaliation was preceded by a stock-market plunge across major global exchanges caused by Trump's unilateral decision. This kind of a roughage is not healthy for stock-brokers and business confidence, especially since the global economy was beginning to post some positive news, most particularly in a European Union that had almost disappeared from the global economic radar over the past decade or so.

Most crucial may be China's response, not just the short-term, but also the long-haul, not just trade and economic bilateral relations with the United States, but also political and security considerations. At stake is not China's growing relative economic competitiveness with the United States, but US insistence for Chinese help to dissuade North Korea from its nuclear programme. With South Korea pursuing rapprochement alone with its northern neighbour, the United States is also feeling like a secondary player over an issue that dominated Trump's initial months in the Oval Office.

China may be ready to play ball symmetrically: though these steel and aluminum tariffs barely impact China, they provide China the tool it needs to retaliate in other, non-economic arenas where the United States needs bilateral cooperation. At the 2017 World Economic Forum, President Xi Jinping stood up to claim the vacant trade leadership spot, so no retaliation is expected in that sector, but that only raises the temperature elsewhere.

Trump is clearly unprepared to play high-stakes games, whether on the security front or the economic: outmaneuvered in Syria by Putin's Russia and outflanked in Korea by President Moon's engagement, Trump's punitive trade action reveals not just an unschooled leader of a significant world player, but also a petty domestic-politics-minded leader of the type Herbert Hoover was almost a century ago. This is the engineering president for whom a mammoth dam is named, but also the one who signalled the greatest depression in US history in 1929.

That comparison may be more than appropriate. Never since has the United States engaged in such bitter punitive trade action from a defensive posturing. Then it was the Hawley-Smoot Tariff legislation that imposed over two-thirds of an across-the-board tariff increment, and it was followed, a year later, in 1931, by the British Imperial Preferences, which set the stage for an Anglo-American rivalry that might have gone the distance had not World War II intervened. It did eliminate Great Britain from trade and monetary global stewardship, as the United States stepped into world leadership almost on the corpses of its actual and potential rivals. The big difference between then (the 1930s) and now, particularly if the 2018 Trump tariff elicits a spate of retaliatory measures, is the United States was behind the steering wheel then if it only bucked its isolationist history, while today it has become just one of many economic (and military) players.

Competition between the many is much harder to tame or stop, than if there were only a few, such as two, players. The genie that might come out of Trump's trade tap might outgrow its own prompter, with the result that we may see (a) hard-core retaliation bilaterally; (b) a scramble for more preferential trading arrangements among the veteran WTO members; (c) strengthening of China's own trading rules and patterns, if not banking, such as through the Asian Infrastructure and Investment Bank, that too at the expense of both the WTO and World Bank regimes; (d) downsizing the United States on too many fronts; and (e) an election-year victory formula through dangerous policy realignments that might play havoc abroad.

With a short-sighted leader and a populism growth industry, one can expect nothing less. What will be more disturbing than the 1940s is the more complicated recovery, complicated because now we are shifting into the unknown.

Dr. Imtiaz A. Hussain is Professor & Head of the newly-built Department of Global Studies & Governance  at Independent University, Bangladesh.

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