Why unilateral measures will hurt America most

Why unilateral measures will hurt America most

Markets rebounded toward the end of last week, putting fears of trade wars on the back burner and looking forward to what will be a positive, if not frothy, earnings season.

Meanwhile French Finance Minister Bruno Le Maire asserted that the trade war has already started. This may sound a little bit dramatic. However, while we may not be in a fully fledged trade war, we are sitting in a bullet train rushing full-throttle toward it.

So far the Trump administration has levied 25 percent tariffs on steel and aluminum imports. Chinese retaliation targeted industry in largely Republican constituencies, which matter to Trump because of the forthcoming mid-term elections. 

They were Harley-Davidson motorbikes, whiskey, soy beans, pomegranates and other agricultural produce. Only when Harley-Davidson said it needed to move some production to Europe, because tariffs were hurting, did the President recognize that trade wars were not unilateral measures affecting other countries, but that they would hit home eventually.

Then things escalated and the President now has China in his sights. He put tariffs on Chinese imports worth $34 billion. The Chinese retaliated on imports of agricultural goods and energy, which are the big categories where the US runs a trade surplus with China.

Trump warned that further retaliation might eventually see tariffs imposed on all US imports from China, which stood at roughly $206 billion for 2017.

The trade battles have macroeconomists worried. So much so that they followed a ship laden with US soy imports, the Peak Pegasus, to see whether she could berth in Dalian before China levied its duties. She did not make it.

Trump warned that further retaliation might eventually see tariffs imposed on all US imports from China, which stood at roughly $206 billion for 2017.

Cornelia Meyer

Trump may feel that he has statistics on his side, because China imports roughly four times more from the US than vice versa. When we examine the composition of goods traded, things look different: China exports goods such as computer electronics and electrical equipment to the US. 

Many of these goods are part of the supply chain of US manufacturers and therefore not immediately fungible. The US exports a lot of agricultural produce, some heavy machinery and also energy (oil). These goods are highly fungible. Latin American, European and other producers would be only too happy to increase their share in that juicy market. So Trump’s measures may well hit America and his constituents harder than China.

In the meantime, the Chinese government is playing its cards well: They will receive European leaders in Beijing on July 16-17 to discuss the economic relationship between the Middle Kingdom and the EU. The discussions are said to focus on market access and liberalization of Chinese investment. The EU began discussing an investment treaty in 2013. They may finally get there, courtesy of President Trump.

Trump’s main concern behind his unilateral actions on trade is China’s unfair trade practices, non-tariff barriers, intellectual property and the country’s investment regime. His allies in Europe and Asia share these concerns, as do many multilateral corporations. It would have been possible for the President to build broad-based alliances to tackle these issues, maybe even using the World Trade Organization’s dispute resolution mechanisms.

In the end, unilateral measures may hurt the US the most, especially if China courts alternative trading partners — which it has already started doing. Trade wars will impact the global economy. It will be expensive to realign supply chains, which will shave percentage points off global growth, bring about job losses and have a real impact on oil markets. 

Decentralized global supply chains and trade boost the demand for the world’s premier transport fuel, which is oil. While the GCC nations may not yet be part of the global supply to the degree of other nations, their most important export commodity is oil. Localized supply chains and less trade equal less demand for oil. 


Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News’ point-of-view

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About Craig Ballantyne 16987 Articles
I love anything to do with Harley Davidson and have two beautiful children and a beautiful partner. In my spare time i like building websites and love anything to do with the internet.

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