Trump’s Trade War

Shipping containers sit on the the Hong Kong based CSCL East China Sea container ship at the Port of Oakland on June 20, 2018 in Oakland, California. U.S
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The world is back to rifts that foreshadowed World War II

A GLOBAL TRADE WAR is in the offing if it is not already on. After US President Donald Trump identified $200 billion worth of Chinese exports for additional—special—tariffs, it was only a matter of time before other countries responded. Even before this, Trump had singled out steel exports from China for extra tariffs. The meeting of the Group of Seven Countries (G-7) last month broke into acrimony over trade issues.

Historically, it has been far more difficult to bring down tariff walls across the world than to erect them. The US Smoot-Hawley Act of 1930 arguably sparked off a trade conflict between the two World Wars. That episode went on to something much worse than mere tariffs. The post- World War II consensus on trade relations was founded on the realisation that once mercantilist actions get out of hand, the entire world suffers. But it took a long time from that recognition till the setting up of the World Trade Organization (WTO) in 1995—a period of 47 years— whose basic aim is to get the world to lower tariffs and allow free trade so that everyone gains. It has taken less than half that time for the entire effort to come unstuck. The world is effectively going back to rifts of the 1930s that foreshadowed the disaster to come.

The trouble with any application of new tariffs is that they don’t affect a single commodity but have a cascading effect on many other products as well. Take steel, for example. Trump’s rage against Chinese steel is derived from the fact that US steel is now uncompetitive even in America. China can deliver the same stuff-—transport cost included—for much less money to an American customer. As a result, the mighty US steel giants have been forced to lay off workers, who form a vocal part of Trump’s political constituency. But extra tariffs on Chinese steel won’t bring back those lost jobs. Instead, it’s likely to result in unemployment in steel-using sectors, such as America’s troubled automobile industry, as a knock-on effect.

Then there is a global chain reaction to contend with. India, for instance, has just announced an increase (up to 70 per cent) in tariffs on chickpeas and Bengal gram (channa) that it imports from the US. This came after the US began levying higher tariffs on some products imported from India. These are peanuts, but they signal the start of trade hostilities.