Daily Times

There seems to be a Don Quixote Syndrome in the Oval Office, as the US continues to escalate what could be now described as a full-blown trade war with its communist alter ego, which has taken its toll on the global economy. But the question remains that while the US President appears to tilt at his windmills, is the trade war even good for the American economy or the rest of the world for that matter? Even during the Obama administration, protectionist measures against cheap Chinese tires proved only to be a populist stopgap as it helped save 1200 jobs in the domestic tire industry but the 35 per cent tariffs also meant that the Americans had to pay approximately $1.1 billion more in higher prices leading to around 3,700 jobs being lost in the retail sector according to the Peterson Institute for International Economics. Meanwhile, the Chinese government responded by slapping tariffs on American poultry; wreaking an estimated $1 billion loss in sales for the American producers.

Take Trump’s decision to place tariffs on steel and aluminium imports, which the exponents of tariffs in the US claim to have saved approximately 12,700 jobs, but downplay the higher steel prices American companies incurred about $11.5 billion a year. The tariffs didn’t pay much dividends except a slight rise in aluminium production in the country. Tariffs once imposed are very difficult to repeal due to the fierce pressure from domestic manufacturers who benefit from protectionisms, such as the 25 per cent tariff on European trucks imposed by President Lyndon B Johnson in 1964 retaliating to the tariffs that West Germany and other Europeans countries placed on the import of American chicken. The former is still retained to this day even after several decades of the abolition of tax on American poultry.

According to the National Bureau of Economic Research (NBER), the Trump presidency has marked the largest return to protectionist policy since the Tariff Act of 1930 proposed by Senator Reed Smoot and Representative Willis C. Hawley during the presidency of Herbert Hoover to support farmers ravaged by the Great Depression and the Nixon Shock of 1971 to stabilise the exchange rate and economic growth bringing an end to the Bretton Woods Agreement. The fact that a monumental $68.8 billion were incurred by Americans last year due to President Trump’s tariffs, which is around 0.37 per cent of the GDP, goes to show how the idea of protectionism fuelling the trade war is foolishly myopic, abandoning the role of global economic leader with the US having the highest tariffs amongst the G7 economies.

Tariffs once imposed are very difficult to repeal due to the fierce pressure from domestic manufacturers who benefit from protectionisms

The 2015 report of the investment bank, Credit Suisse further questions the notion that the US as still the epitome of free trade since it has pushed non-tariff protectionist measures more than any of the largest economies of the world and three times more than its adversary China. Trump’s policy is an exercise in smoke and mirrors. The real agenda isn’t to bring China to its knees or to open up markets but it has to do with re-election since Trump wants China to buy goods from the US, he wants to win in the next elections, like Soya Beans on the “shopping list” handed to the Beijing grown in the Mid-West. This negates the idea of laissez-faire trade that Western democracies advocate, rather promoting greater statism since this demand presented by Trump can materialise if state-owned Chinese enterprises buy goods from the US.

The interconnected world isn’t spared from the tremors the economic standoff of the goliaths, Xi and Trump. The storm clouds of recession loom over seven major economies around the world, the trade war has been playing its role in pushing them over the edge. The world’s fourth-biggest economy, Germany is witnessing an end to its “golden age” as its economy has contracted primarily due to lukewarm automobile exports but made worse by the shambolic Brexit deal. The German economy has a heavy reliance on exporting goods to China and the US both entangled in the trade war. On the other hand, Prime Minister Boris Johnson has his fair share of recessionary malaise for the British economy to bounce back in the mise en scene of pulling out of the European Union, which seems unlikely without a trade settlement in October.

While, Italy faces a cocktail of challenges at home, including unemployment, deteriorating productivity, massive debt all stoking flames of political turbulence and reinforcing the wave of hyper-nationalism. As for Mexico, the country may have dodged recession recently, but the government is still anticipating choppy waters in the months to follow as investment continues to slump with the service sector under strain. Financial indicators have confirmed that Latin America’s largest economy, Brazil is going through a period of economic depression majorly due to a drop in industrial growth and high unemployment. Likewise, Hong Kong a vital financial hub, which has been shaken to its core by the protests at home and Singapore, another major international market are manifesting signs of economic uncertainty.

The ratchet of the US-China trade war could provide to be a wrecking ball jeopardising a global economic equilibrium, which has been in place for over seven decades. The International Monetary Bank has described this as a cause for concern; projecting global growth to be cut down by half a percentage point if better sense doesn’t prevail in order to restore dwindling business confidence. The US made a grave miscalculation of its exodus from the Paris Accord. It is yet again trivialising the stakes of the interconnected world following a collision course, which will eventually push the US economy into a self-inflicted recession.

The writer is a freelancer