Trade Wars between Great Powers: Who Wins?

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Protecting American industry, especially steel, was a centerpiece of Trump’s 2016 campaign. “It will be American steel that will fortify America’s crumbling bridges,” he reportedly said during the campaign. Steel employment has fallen from nearly 650,000 workers in the 1950s to some 140,000 today, with many of the closed mills in swing states such as Pennsylvania. The US trade deficit in goods with China ballooned to a record $375.2 billion in 2017.

Many steel and aluminum producers around the world have long blamed the Chinese government for subsidizing production of the metals in violation of global trade rules, which many analysts say has flooded the global market with low-cost product and sent prices plunging. U.S. producers have clamored for protection from such “dumping” via tariffs or quotas, which previous administrations have provided in limited cases.

In April 2017, the US Commerce Department began an investigation into whether steel and aluminum imports “impaired national security.” It concluded in early 2018 that they did. This opened the door for Trump to apply tariffs as he would see fit. Trump’s announcement came little more than a month after he applied broad tariffs on solar panel and washing machine imports to protect domestic producers.

In March 2018, President Donald J. Trump announced he will apply across-the-board tariffs, or import taxes, on steel and aluminum. Trump argues that the measures are necessary to protect U.S. national security, which he claims has been degraded by the decline of the domestic steel and aluminum industries.  According to experts, Trump’s planned tariffs are potentially much broader.  The President has the authority to apply them under a national security, rather than purely economic, rationale, based on a little-used 1962 trade law.

On 6th July, he imposed tariffs 25% duties on $34 billion worth of Chinese machinery, electronics and high-tech gear.

China reportedly said that it would retaliate against US products, including soybeans and it has been effective in line with Trump’s repeated criticism of Chinese economic practices.

Soybeans in the US are especially concerned because they sell most of their crops overseas and China is their biggest and fastest-growing market.

Many US farmers are unsure that extra tariffs are the best approach and fear the economic damage they would cause. Moreover Illinois-state farmers (43,000 farmers) are the top most growers. The American Soybean Association has been encouraging farmers to speak out in a social media campaign, hoping at least to help keep the tariffs short-lived.

Michael Boland who studies agribusiness at the University of Minnesota reportedly told to AFP that the tariff will reduce the profit of the US farmers negligible to zero. He thinks there would be enough revolt from the US farmers which could end Trump’s tariff However, large steel and aluminum producers cheered the tariffs. The American Iron and Steel Institute thanked Trump for “addressing the steel crisis,” and the second-largest American aluminum producer, Century Aluminum, said the measures would spur them to increase domestic investment.

On 11th July, it is reported that Trump proposed 10 percent tariff  that would hit a number of Chinese products, including fish, vegetables, coal, and handbags. The proposed tariff will be subject to a public hearing from August 20 to August 23 in the US.

Trump insists trade wars are “easy to win” because the US has a significant trade deficit with China. Last year China imported $130 billion in goods from the US, while the US purchased about $500 billion in items from China. Put together, this means that Trump could impose additional tariffs on Chinese imports, but China might not be able to match this with import taxes on US goods that would be of the same magnitude.

In response to the new threat, China has said that it will take Trump’s “trade bullying” to the World Trade Organization, which intervenes in trade disputes.

It is reported that most economists say that the tariffs are unlikely to help U.S. producers. They point to previous attempts to protect the steel industry that have failed to arrest the sector’s decline, and they say that innovation in the industry, not imports, are primarily to blame for lost jobs. Declining demand for steel is another major factor, with U.S. consumption falling almost in half since the 1970s.

It is reported that economists warn that tariffs, which will raise the cost of steel and aluminum, will hurt the many industries that use those metals, costing jobs and increasing prices for consumers. This could include automakers, aircraft manufacturers, beer and soda companies, the energy industry, and the construction sector. Together, these industries employ far more people than do steel and aluminum producers. Manufacturing groups have said Trump’s measures will cost thousands of jobs.  Tariffs increase production costs, lead to higher prices for consumers, and shrink sales for American businesses.

Furthermore, the economists add that previous experience shows that such tariffs will likely fail to revitalize domestic producers while imposing costs on the rest of the economy. Meanwhile, trade experts worry that the tariffs—25 percent on steel and 10 percent on aluminum—could set off a trade war that could ensnare some close U.S. allies, such as Canada, and undermine the global trading system.

Meanwhile, the Republicans (Trump’s party) are working to protect the American economy by saying “NO” to President Trump’s trade war. Eventually observers are of the view that economic pain of US farmers could translate to political hardship for President Trump because soybeans beans are grown in some of the very Midwestern states that helped Trump to win the election.

Several US politicians have come out against the tariffs, saying that Trump’s trade dispute with China is dangerous. Sen. Orrin G. Hatch (R-Utah), chairman of the Senate Finance Committee, said he supported punishing China, but that this was a “reckless” approach.

“We cannot turn a blind eye to China’s mercantilist trade practices, but this action falls short of a strategy that will give the administration negotiating leverage with China while maintaining the long-term health and prosperity of the American economy,” he said on 10th July.

No one is sure which side wins the trade war. However it is reported that the global market has been rattled by the trade wars and price of stocks and shares has gone down quite considerably. n

Barrister Harun ur Rashid, Former Bangladesh Ambassador to the UN, Geneva

  • Issue 3
  • Vol 35
  • DhakaCourier

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