AT Davos in January, United States President Donald Trump warned that the US “will no longer turn a blind eye to unfair economic practices” of others, interpreted by many as declaring world trade war.
Before the US mid-term elections in November, Washington is expected to focus on others’ alleged “massive intellectual property theft, industrial subsidies and pervasive state-led economic planning”, pointing to China without always naming names.
With the Republican Party already united behind his tax bill, Trump senses an opportunity to finally unite the party behind him and to continue his campaign for re-election in 2020.
Since January, Trump has taken steps threatened in his mid-2016 election economic policy document, drafted by US National Trade Council head Peter Navarro and Commerce Secretary Wilbur Ross.
He has imposed tariffs and other restrictions on imports to revive US manufacturing. Import tariffs of 25 per cent and 10 per cent on steel and aluminium respectively have been imposed by invoking Section 232 of the US 1962 Trade Expansion Act, allowing unilateral measures to protect domestic industries for “national defence” and “national security”.
After his announcement, several major trading countries and blocs retaliated or threatened to retaliate against US imports, raising the prospect of a trade war.
The resurgence of US trade protectionism poses two threats. The US has a long history of using ‘anti-dumping measures’, especially on steel. Earlier, imports of washing machines and solar panels were restricted by Trump after the US International Trade Commission declared that they unfairly hurt domestic manufacturers.
The US president has also threatened to impose “reciprocal taxes” on countries imposing tariffs on US exports. This threat has invoked references to the 1930 Smoot-Hawley Tariff Act. Its Republican sponsors, Senator Reed Smoot and Congressman Walter Hawley then argued that it would protect US jobs by shielding American industries from import competition by imposing tariffs on over 20,000 imported goods.
This aggressive protectionism then precipitated the collapse of global trade, as its trade partners then restricted US export access into their own markets. The ensuing trade war undoubtedly exacerbated the Great Depression. Recent developments have understandably revived fears of a new trade war, with similar consequences.
The US’ unilateral actions have seriously challenged the multilateral framework of World Trade Organisation (WTO) trade rules.
The Trump administration has been challenging post-Bretton Woods rules-based trade multilateralism, which sought to develop international trade regulation. Besides many rhetorical attacks on the multilateral trading system, the Trump administration has largely avoided engaging with the WTO while also avoiding violating the letter of existing trade agreements.
Trump has long complained about US and foreign trade policies. He seems to believe that trade is a zero-sum game in which the goal is to export more and to eliminate the US trade deficit. Importing from another country implies that country has “won” and the United States has “lost”. Thus, his version of US ‘sovereigntism’ links trade to national pride. Thus, he accuses others, especially China, of “laughing at us”.
As trade issues are about US jobs, pride and dignity, costs or losses become “a small price to pay”. Thus, imposing tariffs will show foreigners that the US is strong, and cannot be taken advantage of.
For half a century, the US has gone back and forth with trade liberalisation, often coming dangerously close to trade warfare. President Ronald Reagan’s 1980s protectionism is rarely acknowledged as he is now the paragon of US economic neoliberalism.
His trade restrictions used loopholes in trade agreements to raise tariffs and limit many imports besides forcing political allies to accept “voluntary restraints”. Dani Rodrik has argued that Reagan’s protectionism “let off political steam”, enabling the US economy to recover and globalisation to accelerate.
International economic liberalisation or globalizsation since Reagan has also transformed the international context and the consequences of Trump’s recent measures.
Unlike Reagan who arm-twisted political allies to accept his demands as necessary concessions during the Cold War, Trump’s ‘US sovereigntism’ is based on ‘victimhood’, invoking the image of an ex-hegemon, and makes no pretensions of being mutually advantageous or reciprocal.
Yet, prematurely “crying wolf” about a trade war may also accelerate trade war momentum as it remains unclear how international policy is made and changed in Trump’s White House.
While possibly ominous of much more to come, premature, exaggerated criticism of his unilateral trade measures may become ‘self-fulfilling’, given the political need for continued ethno-populist and nationalist mobilisation against enemies, real or imagined. IPS
Jomo Kwame Sundram was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.