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Business News/ Opinion / Views/  Opinion | Another Trump tweet, another trade salvo
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Opinion | Another Trump tweet, another trade salvo

The US president’s latest tariff threat aimed at Chinese imports has revived fears of an all-out trade war. The consequences could be terrible for all, not least for America itself

 (Jayachandran/Mint)Premium
(Jayachandran/Mint)

Just as the world thought that the US and China were headed for a truce on their trade war, US President Donald Trump has sprung a surprise, threatening to raise tariffs on $200 billion worth of Chinese imports as early as Friday. His Sunday tweet announcing this comes just days after he said that talks with China were progressing “very well" and that the two countries could be close to a “historic" deal. No wonder investors around the world were shocked at the sudden turn of events and equity markets tanked. Trump’s threat could yet be no more than a playbook move aimed at negotiating a better deal ahead of a Chinese trade delegation’s arrival in Washington on Wednesday. However, considering the inflexibility the two countries have often displayed, such an assumption cannot be made. Given the hard stand taken by leaders of the world’s two largest economies, particularly Trump, it would surprise few if the latest round of talks also fails and they go ahead with punitive tariffs against each other.

Such an outcome, however, would be terrible for the global economy. It perhaps merits both being issued a stark reminder of where the last major phase of de-globalization left the world. In the 1930s, with America battered by the Great Depression and Europe struggling with all manner of economic problems, mercantilist attitudes gained force and national policies were reshaped to gain at the expense of other countries. Win-win trade ideals were summarily cast to the winds. International relations suffered a breakdown and it wasn’t long before myriad tensions took the form of various geopolitical wrangles across borders that fed the hostile impulses which culminated in World War II. This is not to argue that the world is at risk of an outbreak of hostilities, but it’s always prudent to take lessons from the past.

On imports, Trump seems to have opened up multiple battle fronts, from China to India and Mexico, in the likely belief that a hardline approach would force America’s trading partners to sign up for his simplistic notion of “reciprocal trade", under which market access is a bargaining chip rather than a principle of free market dynamism. What Trump doesn’t seem to realize is that an open market has always been in America’s favour and, given the country’s advantage on technological innovation, there is little reason to suppose that this is no longer so. Staying barrier-free would either turn its producers more cost competitive or push them towards fields of value generation where they have an edge over others. In other words, the US trade deficit is best reduced by the country’s own efforts, not artificial clamps on imports. Trump’s failure to acknowledge as much betrays an anxiety over America’s ability to adapt and prosper. A full-blown trade war would hurt all countries, including the US, as its tariffs against Chinese goods would be met with a similar response from China, which could set off a vicious cycle that draws other countries into barring imports. Before long, the world could plunge into a race of competitive de-globalization. The White House should give up its transactional view of the world. Let each country produce what it’s relatively better at and then exchange those products with one another. Let’s hope sanity returns before it is too late.

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Published: 06 May 2019, 10:50 PM IST
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