IT seems that the ‘America First’ policy of United States President Donald Trump has, again, reared its ugly head. What began as a US-China trade dispute has now turned into a global trade war.
And based on the recent Trump trade manoeuvre of fresh US$50 billion (RM202 billion) tariffs directed at Chinese imports, all hell might break loose and a full-scale trade war might not be too far off.
It all boils down to one single factor — retaliation.
China, through its Commerce Ministry, has made one of its strongest remarks since Trump came into power, by saying that they will strike back against this new move by the US government, which will take effect within days of the announcement.
The ministry also signalled that all previous attempts to manage the US-China trade tension would be considered null and void.
Things are a bit odd of late globally, at least on how Trump administers global affairs.
From the unruly G-7 summit, where he refused to sign the final communique mainly due to differences over trade, to the Singapore summit, where he displayed a fondness for North Korean leader Kim Jong-un, these are indications of something not in harmony with the global trade order and may bring us closer to a global trade war.
A full-blown trade war is not good for anyone.
The crucial and immediate dent would undoubtedly be on the global supply chains.
In fact, most of the more than 1,000 Chinese products on the list under US target are intermediate parts and semiconductor-related products, such as processors and diodes. This will not just negatively affect China, but also countries in Asia, such as Vietnam and other Southeast Asian nations.
China, on the other hand, has prepared a list of imported US goods that they will slap with heavy tariffs in retaliation, including goods in the automotive and agricultural sectors.
As countries erect their trade barriers, instead of abolishing them, economic and political liberalisation initiatives will stand to suffer. We are seeing this development, where far-right political movements are on the rise across the world.
The worst-case scenario is a global economic and financial crisis that would cripple global institutions, such as the World Trade Organisation, the World Bank and the International Monetary Fund.
As usual, in any economic crisis, the poor of the world (especially those in non-European countries) would be heavily affected.
Many economies, especially in Asia, are already feeling the pinch as their currencies are weakening by the outflow of capital looking for safe havens.
As for Malaysia, strategic steps must be taken to manage this situation so that such an outcome will have minimum impacts on our financial sector and economy.
It is important for the government to find ways to attract foreign investors to park their capital in our country and to prevent further capital outflows.
DR IRWAN SHAH ZAINAL ABIDIN
Director, Asian Research, Institute of Banking and Finance, Universiti Utara Malaysia
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