These are interesting times we are living in. But, then, when is it that the “times” are not interesting at all? The European glue seems to weaken. China is flexing her muscles. Trump’s win was nothing short of an upset. IT is but the actions of current U.S. administration that are most worrisome. One can see the very fabric of international relations and economic alliances shifting, and in some cases, distorting. The recent slew of tariffs imposed by the U.S. has sparked fears, and rightly so, whether this is the start of another trade war? We can almost feel a sense of Déjà vu.
When was it last time?
The times were, to say the least, very hard. The Great War had just manifested the extent of destruction conjured by human wrath and technology. As explained in an incisive and exhaustively researched book, Power and Plenty by Findlay and O’Rourke, the war disrupted international trade, market integration and commodity prices. Countries turned protectionist, rabble-rousers took advantage. Excess production, lower product prices and higher tariffs ushered an era of what may be termed as a ‘phase’ of anti-globalization. Protection was on the rise in and outside Europe. The Smooth-Hawley tariff started a tariff war wherein other countries reciprocated by increasing tariffs respectively as well. The results were appalling. After the Smoot-Hawley tariff and the “wrecking ball of Great Depression” U.S. saw its GDP falling as much as by 30 percent and industrial output by 35 percent. Unemployment soared. Such conditions paved the path for people like Hitler to rise to power stoking economic fears and social concerns among the masses and capitalizing (feeding) on their fear.
What is instructive to note here is changes in the economic realm often translate into political and social life as well. Circumstances, of late, including; rise of alt-right, fuming populism and rising Xenophobia bears a testimony of what is mentioned above. Brexit and Trump’s win both had an unavoidable economic dimension, rather a preponderant one, if you may. Netherlands, Italy, Germany even MENA and South Asia are not immune. China with its O.B.O.R is an example of how both the realms are profoundly inter-related.
Trade War?
In this regard, Trump administration’s imposition of tariffs on solar panels and washing machines will have reactions. So will the recent plan to impose tariffs on steel and aluminum. One might say that the reactionary process has already begun. The tariffs on solar panels might slow down the process of shifting to renewables. Steel tariffs are no exception as well. Firstly, in that instead of imposing a global tariff on steel and aluminum there were other options available as well. Second, that there will be mutually-assured-losses in other words U.S. is not all-safe. Last time, in 2002, when President Bush imposed taxes on steel, 200,000 jobs were lost as a result. Thirdly, and most importantly, when it comes to steel China is not the reason at all. Canada contributes more to the import bill in terms of steel as compared to China. In 2016, metals accounted for only 5.1 percent imports from China as per World Bank. If he really wanted to “hurt China” then doing something about machinery and electronics along with furniture and toys, that accounted for 48 percent and 16.5 percent of imports, would have helped. No one is happy from the ban. China is mooting to put tariffs on Soya-beans from United States. China is its biggest market for Soya-beans. Once again, the same logic applied it will not only hurt U.S. but China as well.
Trump has said to slap tariffs on European cars as a retaliation if EU moved for any action against his steel tariffs in the form of taxes.
The fact of the matter is that both countries depend on each other in umpteen ways. Not only both but the whole world too. The leaps in technology, shrinking distances, increased consumer spending has tangled the world in an intricate mesh of interdependencies. It is a web and tweaking even a single strand can make the whole web shake. If this continues Multinationals like Apple and Boeing might suffer as well. This can be like wildfire. Trade wars are not “good and easy to win“. They are dirty and both sides lose.
I hope this is yet another phase in the evolutionary process of globalization. That saner heads will prevail and the stark, unchangeable fact, that the world needs to work together if not for themselves but for the global peace, will be understood and realized. The period (of anti-globalization) mentioned in the start took decades to recover and the world gave a very dear price to pay for this lesson. Let’s not get into that again.
First published in our partner Modern Diplomacy
https://moderndiplomacy.eu/2018/03/10/trump-and-tariffs-deja-vu/