Trade War And Its Repercussions

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Trade wars could be escalated to full conflict between states, as evidenced in the Massacre of the Bandanese after alleged violations of a new treaty.*
Mir Shahid
The contemporary world is governed by the saga of Free trade and free borders for movement of goods and people. This new world order came into being after World War II. This order was largely established after the Washington Consensus. The Britain woods conference established two prominent institutions like IMF and World Bank for whole Globalised world. Therefore the growth and development achieved in aftermath of the said conference is entrusted in the themes of new world order. The Free trade runs into billions of orders. The Crux of Comparative Advantage concept rose to prominence in the contemporary era and the heavyweight advantage in small margins helped countries to achieve development. The countries like Bangladesh, Sri Lanka, India, South Korea, Taiwan , South Africa and Brazil are noticeable examples in this direction. However the straddle of New World order (west ) seems to have taken retreating steps in aftermath of Donald Trump’s America. The onslaught of Make America great again in the campaign was carry forward in the presidential norms by Donald Trump to take especially on China who’s supporting the global growth since Deng Xiipeng Era. The Donald Trump administration started onslaught with the increasing Tariffs on Steel for majority of its partners including European countries. This initiative was followed on by various subsequent steps on protectionist agenda to retreat from Globalism concept. Is this justified? Proponents are emerging excusers? The West is proposing to change colour once again?  Are the reality of power equations same as that of WW II ? Is multi polar world ready to accept dictates? These millions of questions have emerged in the global realities today.
A trade war is an economic conflict resulting from extreme protectionism in which states raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other party. Increased protection causes both nations’ output compositions to move towards their autarky position. Trade wars could be escalated to full conflict between states, as evidenced in the Massacre of the Bandanas after alleged violations of a new treaty. The First Anglo-Dutch War caused by disputes over trade, the war began with English attacks on Dutch merchant shipping, but expanded to vast fleet actions. The Second Anglo-Dutch War for control over the seas and trade routes, where England tried to end the Dutch domination of world trade during a period of intense European commercial rivalry. Similarly opium war escalated on the trade issues. However in present scenario the trade is correlated with conflict between Trump administration and China. The US administration alleges China with unfair trade practice and theft of so called intellectual property from prominent US companies. the U.S. administration is relying partly on Section 301 of the Trade Act of 1974 to prevent what it calls unfair trade practices and theft of intellectual property. This gives the president the authority to unilaterally impose fines or other penalties on a trading partner if it is deemed to be unfairly harming U.S. business interests, especially if it violated international trade agreements. In August 2017, the U.S. opened a formal investigation into attacks on the intellectual property of the U.S. and its allies, which cost the U.S. alone an estimated $225–600 billion a year in losses. In 2018, regardless of tariffs imposed by the Trump administration, China’s annual trade surplus reached a record of $323.32 billion. The result is that the U.S. believes Chinese laws undermine intellectual property rights by forcing foreign companies to engage in joint ventures with Chinese companies, which then gives the Chinese companies access and permission to use, improve, copy or steal their technologies. The U.S. also raises concerns that China fails to recognize legitimate patents and copyrights, and discriminates against foreign imported technology, and that China has instituted numerous non-tariff barriers which have insulated sectors of the Chinese economy from international competition. Thus, the trade war is seen as largely focused on intellectual property in China, especially regarding technology. In April 2018, Trump denied that the dispute was actually a trade war, saying “that war was lost many years ago by the foolish, or incompetent, people who represented the U.S.” He added: “Now we have a trade deficit of $500 billion a year, with intellectual property (IP) theft of another $300 billion. We cannot let this continue.
After that in January President Trump placed a 30% tariff on foreign solar panels, to be reduced to 15% after four years. China, the world leader in solar panel manufacture, decried the tariffs. That same day, tariffs of 20% were placed on washing machines for the first 1.2 million units imported during the year. In 2016, China exported $425 million worth of washers to the United State. President Trump again imposed tariffs of 25% on steel and 10% on aluminium. The tariff would have a greater effect on some other countries, including allies such as Canada and South Korea, than China. Thereafter President Trump asked the United States Trade Representative (USTR) investigate applying tariffs on US$50–60 billion worth of Chinese goods. He relied on Section 301 of the Trade Act of 1974 for doing so, stating that the proposed tariffs were “a response to the unfair trade practices of China over the years”, including theft of U.S. intellectual property. Over 1,300 categories of Chinese imports were listed for tariffs, including aircraft parts, batteries, flat-panel televisions, medical devices, satellites, and various weapons. China responded by imposing tariffs on 128 products it imports from America, including aluminium, airplanes, cars, pork, and soybeans (which have a 25% tariff), as well as fruit, nuts, and steel piping (15%). This process of steep crisis took a slight pause or truce for 90 days after meeting of top two leaders on sidelines of G 20 Summit in Beunos Aires Argentina. This series of protectionist measures and counter measures has made Globalisation or Free trade a hotbed issue of the day. There are various consequences of this narrative which came with some notorious signals for Global Economy. The Economist Irwin Stelzer states China’s centrally directed economy with its goal to preserve communist party control of the politics and economy is relevant to U.S. trade policy. What compels Donald Trump to retreat is surprising move? It’s to be noted that he came in the backdrop of anti globalism campaign which he tries to carry forward in the administration. The TPP withdrawal, decrying Climate change, NAFTA deal review, Syria withdrawal  et Al are but of reflection of his protectionist attitude.
The steps are bound to backfire for America as well as whole world. On the one hand US rose to prominence due to New World order suited to her advantage, retreating from this stance means to open up more space for other countries as is seen today. The China is already engaged in filling the retreating space through BRI ( Belt and Road initiative) and Sovereign debit schemes for South Continent. This space may be more endangering as the Economic strategy for political leverage. The CPEC has already left Pakistan in state of interdependency where some Pakistani economists have feared that it may led to Debit Trap. This is continuing crisis in making which may led to another financial crisis. Then on other hand the retreat from the established order may destabilize global economy. As per Alexis Detocquel “The bleakest period for a Govt is when itself out to reform”. This sudden retreat from Globalised world isn’t easy going seen in the pretext of established linkages. The interconnectedness of Free trade and Free borders like American case of immigrants’ miracle would destroy whole structure. The consequences of decrease in GDP , decrease in GVA , decrease in developmental parameters are but numerous immediate backlash factors going to  emerge. The Francis Fukuyuma theory is in dire crisis. The ideology of Western led Democracy and Western led global order has been disgraced by those in need of defence of their order. It’s so naive on part of Western countries that Central Economy like China is defending the Free Trade order. The WTO and IMF are the pedestal on which present order stands who are dominated by Western countries. Therefore the unfair practice as alleged by west could be resolved through dispute settlement mechanism in place in WTO. The escalation of trade dispute isn’t going to reap benefits. The developing countries who have opened their borders for FDI may face worst case scenario in this tension between major Economies. The innovative out sourcing of business operations is also threatened. Cumulatively the escalation would endanger years of hard work where world is already endangered on political disputes. The contribution of free trade in enhancement of GDP and per capita would dramatically scale down. The strategy may be to keep poor countries in state of poverty which will neither benefit wealthy countries not world at all. The shift towards protectionism is endangered for world Economy as well as polity of world. It’s a sown dragon teeth which may spread to other areas in near future. The truce is but a step in the direction but the logical conclusion could only be reached by sitting across the table. The negotiations need to be intensified to iron out the allegations form relationship for a stable world order which is more inclusive and progressive. The harmony deserves equity and equality not protectionism. The sooner the escalation is resolved peacefully the better the prospect for world Economy.
Writer Shahid Majeed Mir hails from Kupwara and can be reached at mirshahid363@gmail.com*

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