Syed Qamar Afzal Rizvi
LAST Wednesday, the Trump Administration banned 24 Chinese companies to a government list that disallows them from buying American products, citing their role in helping the Chinese military construct artificial islands in the disputed South China Sea. A trade war, initiated by the US President Donald Trump on China, would deliver serious damage to the global economy as protectionist actions escalate. Countries imposing tariffs and countries subject to tariffs would experience losses in economic welfare, while countries on the sidelines might face collateral damage. If tariffs remain in place, losses in economic output would be permanent, as distorted price signals, it would deter maximizing global productivity.
To understand today’s trade war better, one must recall while President-elect Donald Trump was getting ready to move into the White House, and President Obama was packing to move out, (2017) when three economists on Obama’s team fired a parting shot against protectionism. They co-authored an article on the website Vox headlined “US tariffs are an arbitrary and regressive tax.” Rich people pay more in tariffs than poor people, but that is because they have a strong buying power, wrote Jason Furman, the outgoing chairman of Obama’s Council of Economic Advisers, along with Jay Shambaugh, a member of the Council, and Katheryn Russ, a staff economist. Trump Administration has imposed and threatened several rounds of tariffs, and other countries have responded to these measures.
Veritably, Trump’s conceived economic protectionism could have set the aim to contain China’s economic rise or divide Asia, or both, as evidenced by hardened sentiments and efforts to pressure China on its trade, investment and technological policies, while taking many “divide and rule” measures in the Asia-Pacific. But the truth holds that the collateral damage of the United States’ trade wars is being felt from the fjords of Iceland to the auto factories of Japan. Given the Trump set tariff goals, twenty months later, what began as method now looks more and more like madness. A tit-for-tat tariff war has ensnared more than 70% of bilateral trade in goods and raised the spectre of decoupling of two economies that once seemed destined to become progressively more intertwined.
Foreseeably, if the countries can’t resolve at least some of their differences in the coming weeks, the White House will on Dec. 15 add 15% punitive tariffs on a further $160 billion in Chinese imports, delivering on what were once just presidential ruminations. That tariff round could jeopardize America’s record-long expansion, according to some economists. As it stands, the existing duties will knock 0.8% off global growth in 2020, according to recent forecasts from the International Monetary Fund.
In August, 2019, Trump called Xi an enemy and “ordered” American firms to leave China. President Trump launched the trade war to pressure Beijing to implement significant changes to aspects of its economic system that facilitate unfair Chinese trade practices, including forced technology transfer, limited market access, intellectual property theft, and subsidies to state-owned enterprises. Trump argued that unilateral tariffs would shrink the U.S. trade deficit with China and cause companies to bring manufacturing jobs back to the United States. Between July 2018 and August 2019, the United States announced plans to impose tariffs on more than $550 billion of Chinese products, and China retaliated with tariffs on more than $185 billion of U.S. goods.
And yet later, President Xi was back to being a “very, very good friend” as Trump finally signed his heavily hyped “phase-one” trade agreement. Just three months after celebrating that deal, Trump’s rapport with Xi—and the agreement itself — is looking more fragile than ever. In the midst of a troubled reelection campaign, the President is casting about for someone to blame for the pandemic that has already killed more than 56,000 Americans and sent the economy into free fall. The Administration has at times referred to the “China virus” or the “Wuhan virus,” but Trump in recent days focused his ire more on failures at the World Health Organization than directly at Beijing. But if China is unable to deliver on its commitments to import more from the US, which seems likely given the devastating economic impact of COVID-19, things could get nasty.
Undeniably, the global economic map is reshuffling, per se. As companies scramble to protect themselves from US President Donald Trump’s trade wars, the growing technology rivalry between the United States and China, and the disruptions caused by the COVID-19 pandemic, will the long-promised “reshoring” of manufacturing back to higher-wage countries finally take place? Will the U.S. and China “decouple” their economies, particularly for the technologies of the future? If so, how will Europe, Japan and others respond? It is obvious that the US seems not immune from the impact of the trade wars. American farmers have been particularly hurt by Chinese tariffs on U.S. agricultural products, prompting the Trump Administration to give billions in aid to the farm belt. Washington’s imposition of steel and aluminium tariffs and uncertainty about passage of a new North American free trade deal – the United States-Mexico-Canada Agreement – have also stalled local economic development. Christopher Cabaldon, the Mayor of West Sacramento, California, said bids for a $100 million infrastructure project in city came in 80% higher than expected in part because of construction firms’ need to factor in higher costs and risk of additional tariffs in future.
According to the Brookings analysts, Ryan Hass and Abraham Denmark, “the key question for the United States — especially today, as the US economy is in its worst state since the Great Depression as a result of the COVID-19 pandemic — is if the economic costs it paid for those enforcement agreements were worth the billions of dollars lost in value, the hundreds of thousands of jobs lost, the stagnation of US manufacturing, and the devastating effects of the trade war on American farmers.’’ “The relevant US acts grossly interfere in China’s internal affairs, violate international law and relevant international norms, which are totally out of hegemonic logic and power politics,” Foreign Affairs Ministry spokesman Zhao Lijian said. “China will take firm measures to resolutely safeguard the legitimate rights and interests of its enterprises and individuals.”
—The writer, an independent ‘IR’ researcher-cum-international law analyst based in Pakistan, is member of European Consortium for Political Research Standing Group on IR, Critical Peace & Conflict Studies, also a member of Washington Foreign Law Society and European Society of International Law.