Trade war produces no winner

BRUSSELS/BEIJING, March 9 (Xinhua) — In 1930, the Smoot-Hawley Tariff Act
sponsored by U.S. Senator Reed Smoot and Representative Willis Hawley was
signed into law. By raising U.S. tariffs on more than 20,000 imported
goods, Smoot and Hawley promised America would start winning again.

Sounds familiar? Eighty-eight years later, by announcing planned steep
tariffs on steel and aluminum imports, U.S. President Donald Trump made
similar promises to defend U.S. workers from what he calls the “carnage” of
“terrible trade deals.” Smoot and Hawley’s promise had turned out to be
empty. Their act only exacerbated the Great Depression and further
destabilized the international order. What is awaiting the United States
this time?

BACKLASH AT HOME

The planned new tariffs mark a fresh endeavor for the “America First”
policy. Moving from rhetoric to action, the White House said the United
States is set to impose a 25-percent tariff on steel imports and a
10-percent tariff on aluminum imports to protect the U.S. industry.

However, even core members of the U.S. administration do not believe the
measure will work. The latest repercussion of the protectionist stance came
from Gary Cohn, who has decided to resign as Trump’s top economic adviser.
The former Goldman Sachs executive, who had a steady influence on U.S.
economic policy, chose to leave due to a “fierce disagreement” over the
president’s decision on steel and aluminum imports tariffs.”His departure
raised questions about the direction of the Trump administration and sent
Dow futures plummeting 300 points,” said the CNN. Prior to the move on
steel and aluminum, the U.S. administration in January approved tariffs of
up to 50 percent on imported washers for the next three years and of up to
30 percent on solar cells and modules for the next four years.

The move marked the first time that the U.S. government had ever used the
so-called Section 201, an outdated tool under a rarely used Trade Act of
1974, to unilaterally impose tariffs or other trade restrictions on foreign
imports since 2001. Opposition ran high even before Cohn’s departure.
Levi’s, known worldwide for its iconic jeans and one of the targets of the
European Union’s (EU) retaliation, said it was strongly against trade
barriers. “We support open markets and free trade where everyone plays by
the rules. Unilateral tariff impositions risk retaliation and destabilize
the global economy, in which case American brands, workers and consumers
will ultimately suffer,” said a spokesperson of Levi’s. Meanwhile, Business
Round table, an association of chief executive officers of America’s
leading companies, said it strongly disagrees with the tariffs because it
will hurt the U.S. economy and American companies, workers and consumers
and would lead to foreign retaliation against U.S. exporters. “Using
‘national security’ tools to implement tariffs could embolden other
countries to impose ‘national security’ tariffs on U.S. exporters or
otherwise restrict U.S. goods and services sold to their markets,” said
Joshua Bolten, president and CEO of Business Round table, in a statement.

KICKING HORNET’S NESTS WORLDWIDE

The Trump administration’s aggressive move has unsurprisingly triggered
furious reactions from the United States’ trading partners, including many
of its allies.

Believing the measures are “making no sense,””sending the wrong signal” or
“absolutely unacceptable,” they warned of serious damage by the planned
tariffs to the international trade order, vowing to take “responsive
measures” if necessary.Criticism quickly came from America’s largest source
of steel imports,Canada. Canadian Prime Minister Justin Trudeau called the
U.S. plan “absolutely unacceptable.” “The United States has a
2-billion-Canadian-dollar (1.55-billion-U.S.-dollar) surplus on steel with
us, so we regard the imposition of any new tariffs or any tariffs on steel
or aluminum between our two countries as absolutely unacceptable,” he said.

It makes no sense for the United States to claim there is a national
security imperative for imposing the duties, given the level of security
cooperation between the two countries, he added. Across the Atlantic, the
air is also filled with fury. Commenting on the steep tariffs, the German
Engineering Federation expressed concerns about the possibility of a
“global trade war” creating a “spiral of reciprocal tariffs.” “Someone who
talks so much about fair trade like President Trump should not resort to
such unfair methods,” said German Economy Minister Brigitte Zypries.
France also voiced its opposition to the move. Calling the planned duties
unacceptable, French Finance Minister Bruno Le Maire warned of a
coordinated European response, adding that “all options are on the table.”

The EU is set to lay out plans on Wednesday to strike back against the U.S.
move. European Commission President Jean-Claude Juncker said, “We will now
impose duties on motorbikes, Harley-Davidsons, on jeans, Levi’s, on bourbon
…” “We will not sit back and watch idly while our industry is hit by
unfair measures which endanger thousands of European jobs,” he added.
Meanwhile, the United States’ largest trading partner, China, has pointed
out that the practice will damage multilateral trade mechanisms represented
by the World Trade Organization (WTO) and have a huge impact on the normal
international trade order. “If the final measures of the United States
hurt Chinese interests, China will work with other affected countries in
taking measures to safeguard its own rights and interests,” said a Chinese
Ministry of Commerce statement. “We hope the U.S. side respects the
authority of the multilateral trade system, works with other countries to
maintain the normal global trade order and consolidates the foundation for
world economic recovery,” it added.

A TRADE WAR SEES NO WINNERS

With the United States retreating to the stronghold of protectionism and
nationalism, concerns about a trade war are rising around the globe.

“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,” Trump tweeted one day after the announcement. But his
optimism is shared by few. Noting that the potential for escalation of
tensions is real, WTO Director-General Roberto Azevedo said that “a trade
war is in no one’s interests.” “American trade protectionism — even in
the periods most often cited as ‘successes’ — not only has imposed immense
economic costs on American consumers and the broader economy, but also has
failed to achieve its primary policy aims and fostered political
dysfunction along the way,” said Scott Lincicome, an international trade
attorney. “In no case can it confidently be said that American
protectionism was a substantial cause of American prosperity or the
flourishing of protected U.S. industries,” he said in a recent study titled
“Doomed to Repeat It.”

Lincicome said import restrictions most often turn to abject failures, and
impose massive costs on U.S. consumers, workers and companies without
achieving their intended objectives. “With increased U.S. integration into
the global economy, and new U.S. trade agreement obligations, these
historical failures would only be exacerbated today,” said the trade
expert. For Stephen Roach, former chairman of Morgan Stanley Asia and the
firm’s chief economist, raising tariffs manifests the Trump
administration’s narrow fixation on an outsized bilateral trade imbalance
with its partners, including China. Lacking domestic savings and wanting to
consume and grow, America must import surplus savings from abroad and run
massive current account and trade deficits to attract foreign capital, he
said in a recently published article, describing it as the root cause of
the U.S. trade imbalance. “Consequently, going after China, or any other
country, without addressing the root cause of low saving is like squeezing
one end of a water balloon: the water simply sloshes to the other end,” he
said. “In this context, protectionist policies pose a serious threat to
America’s already-daunting external funding requirements — putting
pressure on U.S. interest rates, the dollar’s exchange rate, or both.” The
Smoot-Hawley Tariff Act made the Great Depression worse for the United
States than it might otherwise have been, mainly by inciting protectionist
retaliation against U.S. exports and creating a climate of economic
nationalism around the world. “Sadly, one of the most painful lessons of
modern history has been all but forgotten,” said Roach.