Of global trade, bullying and Donald Trump
Is bully a coward? It is a question often raised in the current international discourse. The threatening postures of US President Donald Trump on three fronts remain a source of grave concern. Trump, according to Richard Hass, president of the American think tank Council for Foreign Relations, is now set for war on three fronts. In a tweet on 23 March, Hass says Trump is now set for war on three fronts—political vs. Bob Mueller who is conducting the Russian investigations, economic vs. China/others on trade, and actual vs. Iran and/or North Korea. “The world is closing in on Trump and he is an existential fight for his own survival,” says commentator Charles M. Blow in The New York Times on 25 March.
But,Trump is not prone to backing down so easily in the face of adversity regardless of the disastrous outcomes arising from his actions. In the normal course, every mother tells her child never to give in to threats of a bully. Indeed, a bully often retreats when challenged/or hit back. However, in international trade, which is based on mercantilist framework guided by “Mennu Ki Faida” (what benefits me most), a powerful bully’s actions tend to succeed unless there is concerted cooperative action.
But right now, the biggest trading nations—the European Union, Canada, Korea, Mexico, Brazil, and India, are giving in to the continued threats and illegal actions. Many of them are quietly holding negotiations with the US following its Section 232 unilateral safeguard measures on steel and aluminium.
Even China, which holds American debts running into trillions of dollars and which initially announced retaliatory measures to the tune of more than $3 billion on several products, is now busy resolving the measures slapped by Trump. Chinese officials, according to a news report in Financial Times on Monday, “are rushing to finalize new regulations by May that will allow foreign financial groups to take majority stakes in international companies as they seek to avert a looming trade war with the US.” Beijing has also offered to buy more semiconductors from the US by diverting some purchases from South Korean and Taiwanese manufacturers, in an effort to help reduce annual $375 billion merchandise trade surplus with the US,” the report says.
Little wonder that the US President on 23 March dismissed the possibility that his decisions to impose tariffs on steel and aluminium imports as well as at least $50 billion in additional tariffs on Chinese high-technology products will spark a trade war with Beijing. “China is going to end up treating us fairly,” the President predicted. “For many years they had free reign. They don’t have free reign anymore.”
President Trump has vowed to take further actions. “Last year we lost $500 billion on trade with China,” he said. “Many other countries are now negotiating free trade deals with us,” he stated. So, we’ll be rolling them out as you see them. And part of the reason, frankly, that we’re able to do that is the fact that we have the tariffs on steel and the tariffs on aluminium. Because it showed how unfair some of these trade deals that have been in existence for many years—how unfair they’ve been.”
In short, the continued bullying by a powerful cowboy works in international trade because it is not based on any cooperative arrangement. He knows that “trade wars are good and easy to win.” From the Boston Tea Party of 16 December 1773, which was a primarily a political protest against the Tea Act of 10 May 1773 enacted by the colonial ruler Britain, to Donald Trump’s latest actions on the trade front clearly reveal that it is difficult to withstand the pressures of the bully in the international trade regime.
The Boston Tea Party could be reckoned as one of the first trade wars in which a measure imposed by the British government led to an unstoppable retaliatory action on the shores of America. Prior to this historic event, the Dutch East India Co. and the British East India Co. had triggered off many trade wars but the native populations remained unsuccessful in their retaliatory actions. Subsequently, the US, Britain, France, and the Netherlands among others slapped high import duties for a period of more than 150 years to build their respective domestic industries until another unilateral measure called the Smoot-Hawley Tariff of 1930.
Even India has announced that it would hold negotiations with the US to ensure that there is no adverse fallout of the safeguard duties because of its security relationship. The moral of the story is that a bully continues to win in international trade because of the fragmented nature of alliances. Therefore, trade can “promote cooperation and dialogue” as the billboards claimed before the informal ministerial summit in New Delhi on 19 December was naïve.