Nobody wins a trade war, Mr Trump

The great game in the global economy, which consisted in large numbers of countries sitting down to negotiate vast free trade and investment agreements, has suddenly been reversed by the whims and follies of one single man

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example when we are down $100 billion with a certain country and they get cute, don’t trade anymore – we win big. It’s easy.”
— Tweet by Donald J Trump, 2 March 2018

Trade is after all an instrument of geopolitical struggle for supremacy. For all the talk at the World Trade Organization (WTO) over the past decades during which the richest nations of the globe led by the United States were peddling the notion of free trade as the panacea for development and economic efficiency, the naked truth has finally come out. President Trump has proposed steep tariffs on import of steel from its principal suppliers, namely China and Europe. Canada and Mexico, both members of the North Atlantic Free Trade Agreement (NAFTA) between the US and these two countries, have been exempted from these tariffs for the time being probably awaiting the re-negotiation of the NAFTA by Trump’s administration.

The great game in the global economy over the past decades, which consisted in large numbers of countries sitting down to negotiate vast free trade and investment agreements, has suddenly been reversed by the whims and follies of one single man. President Trump has debunked the very notions on which the whole architecture of a “brave new world”, led and fashioned by the WTO, according to the principles of free markets and liberal trade and investment regimes, was being constructed. The biggest among those negotiations was the one between the European Commission and the United States to create the Transatlantic Trade and Investment Partnership which would soon be complemented by the Trans-Pacific Partnership involving a market estimated to be worth around USD 5 Billion.

Poorer and developing countries, which actually had no say in these developments, were mostly collateral victims of a trend forced upon them by the powerful nations. There could be no clearer indication of the axiom that “might is right” with regard to the implications resulting from the application of the new rules of trade. They were forced to open their economies and “integrate the global economy” against the promise of greater national welfare when not under threat of being ostracised.

Trade instruments such as Special and Differential Treatment designed to help poorer and developing nations overcome some of the handicaps inherent to trade between differentially endowed nations were scrapped in the name of creating a “level playing field”. Mauritius, for example, lost its benefits of the Sugar Protocol and the preferential access to the European Union market all in the name of what was thought to be the “new grail” of economic efficiency and improved welfare – free trade and investments which would benefit humanity from all nooks and corners of the globe. Until Mr Trump came along.

To avoid any misinterpretation, it might be useful to emphasize that the point here is not to argue against more trade and integration in the global economy per se. The argument is that things have got out of hand and beyond reason: the maximalists have won the day and in the process free trade became an end in itself instead of being a true instrument of development and fair sharing of economic gains and enhanced well-being of all actors, as indeed envisaged by the classical economists. Integration into the world economy at a pace and according to the prevailing conditions in regional groupings keeping in mind Special and Differential Treatment for such cases as Small Island Developing States (SIDS), for example, had been the governing norms of expanding international integration before being shun as taboo in the wake of the rise of the ideology of unfettered free markets.

The great irony is that at a time when the anti-globalization movements, which have been regularly organizing protests at all major gatherings of the Group of 20 richest nations or other international pro-globalization events, seemed to be running out of steam, the decisions of the President of the United States will certainly act as a fillip to their cause. For those of the “realist” school of international relations who believe that often the course of events in the world are marked by violent swings before settling in a more balanced and central position, the actual turn of events may represent an opportunity for an ultimate positive outcome. The essence of which would be for the WTO to rid itself of its ideological biases and assume its true mission of facilitating the expansion of international trade in an orderly fashion which benefits the largest numbers while giving due attention to the losers.

In conclusion, we shall quote the following from Mary Anne Madeira (Assistant Prof of Political Science, Queen’s College, City University of New York):

“The last full-blown global trade war was sparked by the infamous Smoot-Hawley tariff of 1930. As the U.S. slid into the Great Depression, two members of Congress introduced a bill whose goal was to protect struggling American farmers by raising tariffs on agricultural imports. As the bill moved through Congress, the limited farm protection bill snowballed into a protectionist behemoth, raising nearly 900 tariff lines covering 20,000 agricultural and manufactured products. Over the objections of economists, trade advisors, and foreign governments, President Herbert Hoover signed the bill into law.”

The reaction around the world was swift and punitive. Canada, America’s leading trade partner at the time, imposed retaliatory tariffs that cut U.S. exports to Canada by half. Several other European countries enacted protectionist policies in retaliation to the new U.S. tariff. A trade war had begun.

Rajiv Servansingh

* Published in print edition on 6 April 2018