Rashid A Mughal
OVER 1,100 leading economists sent a letter to President Donald Trump urging the president to reverse course on recent trade tactics — lest the US repeat one of the biggest mistakes of the Great Depression. The letter, drafted by the conservative-leaning National Taxpayers Union, warned that recent tariffs and trade protectionism were harmful to the US economy. The economists cited a 1930 letter that warned Congress against passing the Smoot-Hawley Act, a large package of tariffs that many studies cite as a major reason for the depth of the Great Depression. “Congress did not take economists’ advice in 1930, and Americans across the country paid the price,” the letter says. “The undersigned economists and teachers of economics strongly urge you not to repeat that mistake. Much has changed since 1930 — for example, trade is now significantly more important to our economy — but the fundamental economic principles as explained at the time have not.”
The Smoot-Hawley tariffs, much like Trump’s measures, were designed as protection for US industries. But they ended up making the situation worse. Included on the new letter are 14 Nobel laureates and economists from across the political spectrum, including former chairs of the Council of Economic Advisers under Presidents Barack Obama, George W. Bush, and Bill Clinton. The letter also quotes the warnings from the 1930 letter, which warns that tariffs raise prices on consumers, damage industries that rely on trade director or indirectly, hurt the fortunes of American farmers, and lead to retaliatory measures from other countries. The 1930 letter also painted the tariffs as a threat to national security. “Finally, we would urge our Government to consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations,” the 80-year-old letter read. “A tariff war does not furnish good soil for the growth of world peace.” Describing the recent US move to impose tariffs on steel and aluminium products as a “black day for the world and business”. Mackenzie, the CEO of BHP,the largest Metal giant in Australia, told a forum that “BHP will never seek to hide behind trade barriers to shield ourselves from out lack of competitiveness”. “Free trade is self-evidently the life blood of the global economy and we expect it to flourish despite the regrettable developments in the United States” he said. “The demand for infrastructure investment in BRI regions is huge”. Many of the countries and regions along the Belt and Road (CPEC) rely on steel imports, which could mean an increased demand of 150m tons of extra steel and a massive windfall for mineral producers, according to BHP estimates.
The US is flowing against the tide of globalization by advocating protectionism to seek its own profits and that will leave itself less room for development. Recently the US government has been threatening to increase tariffs on imported goods, as an act of trade protectionisms and imposing its unreasonable will on other countries. US President Donald Trump holds that his country the world’s largest economy is a “victim of free trade” and has been treated unfairly” in the global trade system. Taking such an allegation as a banner, the US sees itself as standing on “a moral high ground”. The US has inappropriately adopted trade protectionisms only to find that its way of solving trade frictions is supported by nobody even its allies. At the recent meeting of the WTO Council for Trade in Goods, the EU, Japan, South Korea and Australia warned that the trade barriers set up by the US will threaten the rules based multilateral trade system. British International Trade Secretary Lian Fox told BBC that British is a firm supporter of the WTO and the country will abide by international trade rules. All these clear responses are undoubtedly a strong blow to the US. Obviously the “national security” excuse is invalid. The purpose of the US is to nakedly protect its industry through increasing tariffs, which is sabotaging the rules for fair trade.
Without rules, there will be no order. As one of the major makers of international trade rules, the US has become an obvious breaker of them judging from what it is doing. It’s move has put the world under the threat of being in disorder and made the entire world economy jittery, uncertain, shaky and has disappointed almost all it’s friends. “International trade should be established upon rules not strength or power, said former WTO Director General Pascal Lamy, pointing out that the rules based multilateral trade system might need some adjustments, but the prerequisite is to first consolidate it. This is not a recipe for sustained economic growth, especially for the world’s largest economy and one that gets 71% of its gross domestic product (GDP) from consumer spending. America can’t use credit cards to buy its way to prosperity. The US won’t get much help from the rest of the world. The IMF cut its outlook for global growth to 3.8% from previous estimates of four percent. It noted that there is a 38% chance the euro zone, the world’s biggest economic region, will fall back into a recession. Economic trajectories for China, Japan, and Russia are also an issue. All of this could seriously damage the US economy. That’s because approximately 50% of the public companies that make up the S&P 500 get sales from Europe. Add it up. The stock market is sorely overvalued. The so-called US recovery may have helped make Wall Street wealthier, but it has done little or nothing to benefit common man in the Street. The US economy isn’t as strong as we’re being told it is and the global economy is in a mess too.
— The writer is former DG (Emigration) and consultant ILO, IOM.