Of Donald Trump and the North-South trade divide
The Trumpian trade games is a defining moment for China and other southern nations, including India, whether they can safeguard their special and differential flexibilities in global trade
If “war is a continuation of politics by other means”, what would President Donald Trump’s trade war against China constitute? A full-blown trade war between Washington and Beijing is yet to take a concrete shape. Right now it is all in the realm of threats with both sides flexing their muscles. The US, which has become the unilateral champion/bully under Trump, began the trade war games last year as part of its “America First” strategy.
It started with safeguard actions on imports of crystalline silicon photovoltaic cells and large residential washers in January. Washington imposed safeguard duties of 30% on imported solar cells and duties between 25-50% on large residential washers that came into effect on 7 February. Two countries—China and Korea—were the prime targets.
Then Trump enacted tariffs of 25% on steel and 10% on aluminium against all countries, invoking national security on 8 March. Although the European Union signalled it would take action against the US on three tracks, it quietly held confabulations with Washington to secure exemptions from the steel duties. Canada, Mexico, Japan and Korea followed suit.
China stood its ground and challenged Trump’s unilateral action by targeting 128 US products such as fresh fruit, pork, and recycled aluminium on 23 March. Then, Trump intensified the trade war games by signing “a memorandum targeting the economic aggression of China” on 22 March and threatening to impose new taxes on $60 billion of Chinese import in retaliation for the alleged theft of intellectual property under Section 301 of the 1974 US Trade Act. The Chinese products that would be subjected to additional duties following “the forced transfer of US technology and intellectual property” include items from a variety of sectors such as aeronautics, information and communication technology, and robotics and machinery.
Beijing also announced it would impose retaliatory measures to the tune of $50 billion on various American products. China targeted politically sensitive products such as soy, automotive and aerospace that could severely undermine the prospects of the Trump’s Republican candidates in the mid-West region and elsewhere in the elections to the Congress later this year.
China’s bold action both against steel and aluminium followed by its ready-to-impose retaliatory measures on soybean and aircraft unsettled Trump. On 6 April, he ordered the US Trade Representative to consider imposing tariffs on an additional $100 billion on imports of Chinese goods. An agitated Trump told his agriculture secretary Sonny Perdue to prepare a plan of action to subsidize American soy and other farmers if China implements its retaliatory measures on American agricultural products.
In short, the trade war dynamic unleashed under the specious plea of addressing US trade deficits by Trump rattled markets. The BNP Paribas Asset Management, according to a news report in Financial Times on 7 April, warned that “if the Trump administration decided to pursue an aggressive trade war against China” then it would raise questions over whether Beijing might sell down its vast $1.2 trillion holding in the US treasuries. However, the BNP said “the probability of a full-blown US-China trade war was low.”
Nevertheless, the US seems determined to intensify its actions against China on several fronts to extract concessions from Beijing. The US will try and isolate China by building a coalition of willing countries such as the European Union, Japan, Canada, and Australia. Washington will heighten the threat of China in frontier areas of technologies, particularly artificial intelligence and robotics, to prepare the ground for a global embargo on investments by Chinese companies in Europe and the US.
Trump who called the World Trade Organization (WTO) a “catastrophe” said on Friday : “China, which is a great economic power, is considered a developing nation within the World Trade Organization. They therefore get tremendous perks and advantages, especially over the US. Does anybody think this is fair. We were badly represented. The WTO is unfair to US.” But the WTO director-general Roberto Azevedo, who remains silent on such damaging/disparaging tweets from the US President, wants to hold consultations to address the US concerns.
In crux, the Trumpian trade games are increasingly morphing into a North-South trade divide. It is a defining moment for China and other southern nations, including India, whether they can safeguard their special and differential flexibilities in global trade that are sought to be erased from the multilateral trade rulebook by an unpredictable hegemon along with its close western allies.
China might have committed several mistakes and violated global trade rules. But it has offered a blueprint to India and other developing and poor countries for climbing up the economic ladder and lifting more than 700 million people out of poverty. In many ways, Beijing has adopted an economic model that was perfected by the US and other dominant western powers when they selectively implemented intellectual property rights for advancing their strategic goals for the past 200 years. The Cambridge economist Ha-Joon Chang is right when he argues persuasively that the US and other northern countries became rich only by “kicking away the ladder”.
Editor's Picks »
- Market optimism before 2019 general election: History may not repeat itself
- UltraTech Cement: No respite from cost pressures
- Mindtree sees strong revenues but client concentration remains high
- Bandhan Bank’s share defies gravity as growth story is intact
- Fund managers slashing allocations to equities in emerging markets, shows BAML survey