In 2017, the world economy appeared to be finally recovering from the disaster brought by the Subprime crisis in the US in 2007. But just as the world was trying to catch its collective breath, the Trump Administration started an unexpected trade war against almost the whole world.
No matter which countries may be temporarily exempted from the recently announced US tariffs on steel and aluminum due to so-called “national security, there are undoubtedly more surprises waiting for them, for example, South Korea, and the US now have a new set of trade issues they did not have previously.
It is obvious that the US is trying to change the current multinational trade system. But why?
The answer is a little bit complicated.
There was a range of different opinions in the White House before Gary Cohn, the former White House economic adviser, handed in his resignation on March 6, 2008.
There are now no more alternative voices in the White House to balance the pull towards protectionism led by Peter Navarro, the former professor at UC Irvine, the author of several books like Death by China: Confronting the Dragon – A Global Call to Action. These officials believe that the US has been unfairly treated because they are “honest” and the others “cheat” in the global game of trade.
As the US domestic political situation continues to get tense this year with the Mid-term election in the Congress, there will be more support for these protectionist policies that appear to benefit the
US President Donald Trump gestures while arriving for a roundtable discussion on tax reform at the White Sulphur Springs Civic Center in White Sulphur Springs, West Virginia, US, on April 5.2018. /VCG Photo
Like other countries, the US has some industries which benefit from globalization, but some states will not be able to reap the benefits across the entire population without changes to how they develop and change industrially over the coming years and update the skills of their labor force accordingly.
There is another important political factor when analyzing Donald Trump’s White House. Many of the states, which would be most affected by tariffs are politically important to Trump and the Republicans are looking at ways to increase their share of the vote. Using protectionism will give industries in these states more competitive advantage in the short time.
But, as manufacturing is entirely different from the services, for a country, or state, to change employment associated from one industry to another can take time.
China will directly benefit from the US restructuring its industrial base. The Chinese economy is more directly affected by economic restructuring in the rest of Asia rather than the US.
In fact, it would appear that a large part of the White House and Trump’s international focus on “America first” and trade issues stem more from an attempt to distract from the internal frustrations like medical reforms or the Russia election scandal. The US should try to behave more reasonable in the trade and investment issue.
US President Donald Trump arrives at Andrews Air Force Base in Maryland on March 25, 2018. /VCG Photo
There has been a history of the US taking advantage of its superpower position when it comes to global trade. All 164 WTO (World Trade Organization) members believe that the stable and predictable trade mechanism is vital for not only exporters but also importers.
Yes, it’s true there will always be some disagreements between different countries and different parties. But there is a sound mechanism to deal with disputes.
If the US wants to declare the dispute settlement function of the WTO a failure or wants to postpone or stop the appointment of judges, the cost of disobeying the WTO rules will increase quickly. In the final analysis, this will harm the US interests in the very near future.