The Donald and his trade war
Whenever you think it impossible to find a president more incompetent than the previous one, the US electorate proves you wrong. After Bush The Torturer, they found Obama The Messiah and now we have The Donald, a very special cookie.
You have to read his book The Art of the Deal to understand his way of negotiating a “fairer or better deal”. Confusing the enemy is part of his strategy. We can only hope that his trade and financial policies fall within this category and that he is not actually willing to risk a breakdown of global trade.
So far, Donald Trump has imposed tariffs on Chinese goods worth roughly $60 billion a year. The Chinese have retaliated with the announcement to introduce tariffs on 128 products imported from the United States such as nuts, wine and pork, valued at about $3 billion.
The World Trade Organization’s director general, Roberto Azevêdo, rightly warned: “These unilateral actions made lead to an escalation of trade-restrictive measures, ending up possibly in some kind of trade war.”
Donald Trump went as far as to assert that the World Trade Organization “has actually been a disaster for us [the US]” and that the WTO had “been very unfair to us”. At the same time, the Trump administration’s trade representative Robert E. Lighthizer announced to file a new case at the WTO to stop China’s policy of forcing foreign investors to transfer technology to the pseudo-Communist one party state.
One hand hand, Trump is endangering the existence of the World Trade Organization, on the other he is seeking its help to enforce a better, fairer deal for the US (and the rest of the world).
Nobody expects The Donald to be rational, to act logically. At the same time, in what he says and does, there is sometimes a grain and sometimes even more than just a grain of truth.
Nevertheless, a trade war is not the right answer to problems with China. The many issues include the fact that you cannot own land in China, that FDI’s are limited to 49% of companies, which need a Chinese partner, that China does not respect intellectual property, that there is no rule of law in the pseudo-Communist one-party state.
The US administration has imposed tariffs on steel and aluminum imports from some countries, notably from China. The idea is that the United States are strong enough to bypass the WTO and to enforce better deals unilaterally. However, the EU, the US and China have economies of roughly the same size. All three could think that they can win and/or will not lose a trade war which, therefore, could quickly escalate into a breakdown of world trade.
Trump’s understanding of global trade seems to be limited. He does not understand that, for instance, the car industries in Mexico and the United States are intertwined, for instance linked through shared supply chains. He does not seem to know that the German car manufacturer BMW is not only producing cars in the US, but is actually the United States’ largest car exporter.
The list of President Trump’s ill-informed economic and financial decisions is long. It was surely right to lower the excessively high corporate tax rate. However, he did not systematically close the loopholes, notably for multinational companies such a Apple, Amazon, Google, Starbucks and many others. Delaware remains a tax haven. Trump’s tax cuts could make the US public debt definitively spiral out of control. Already now, it has reached 104% of GDP. The US Congress’ Joint Committee on Taxation warned that, in the period of 2018 to 2027, the tax cuts could add another $1,45 trillion of public debt to the preexisting mess.
We live in the interconnected world. A trade war in 2018 could have an effect much worse than the one of the 1930s, which deepened and prolonged the Great Depression. The Donald is not fit for the top job. Unfortunately, the economy is booming and too many people think that Trump knows what he is doing when it comes to the economy. The next economic and financial crisis could bring a rude awakening.
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President Donald Trump poses for his official portrait at The White House, in Washington, D.C., on Friday, October 6, 2017. (Official White House Photo by Shealah Craighead). The image is in the public domain. Photo: Wikipedia / Wikimedia Commons.
Article added on April 4, 2018 at 12:48 Paris time
