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Sunday, 20 October 2019

Trading partners or punching bags?

The trade war between the United States and other countries has been harming international cooperation and hurting consumers worldwide.

Azza Radwan Sedky , Monday 7 Jan 2019
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Countries will probably always engage in gruesome wars; however, another type of war is slowly creeping up on us, and it is equally calamitous. These upcoming wars may change course to focus on trade, eliminating weapons and replacing them with tariffs and taxes. The US, as it has done in countless standard wars, is now briskly waging the new trade wars.

US President Donald Trump campaigned for the presidency and landed in the White House on an “America First” ticket and the promise of making trade fairer for American businesses. Implementing these promises is getting the US entangled in trade wars that are equally far-reaching in their consequences as conventional ones.

The rising protectionism that Trump demands entails shielding US domestic industries from foreign competition by taxing imports. This is occurring as free trade, which drives prices down and boosts economies by eliminating restrictions on imports and exports, becomes a thing of the past.

The first agreement to be hit by the trade war was the Trans-Pacific Partnership (TPP) Agreement that the US pulled out of. The TPP, an agreement between 12 countries bordering the Pacific Ocean, aimed at deepening and stimulating economic ties as it removed tariffs on trade. Today, doubts are engulfing the TPP, and the possibility of its continuing without the US is minimal.

Then came Trump’s threat to withdraw from the North America Free Trade Agreement (NAFTA), a trilateral agreement between the US, Mexico and Canada which eliminated tariffs and trade barriers and has controlled trade among the three states for over 25 years. After intense negotiations and haggling, a new NAFTA deal, NAFTA 2, was signed in November 2018 with major changes to the original agreement.

Furthermore, Trump has imposed tariffs on US imports from Canada, Mexico, the EU and China in the hope that American consumers will buy local goods. Immediately, the affected partners reciprocated with their own tariffs, however. The US and its partners then embarked on a retaliatory trade war that will ultimately affect the world at large.

Given the shared border, close proximity and historical resemblances, trade between the US and Canada is the largest in the world after trade between China and the United States, and yet a trade dispute has come about as the US has implemented a 25 per cent tariff on steel and a 10 per cent tariff on aluminum from Canada and several other countries, shattering the collaborative climate.

Canada has retaliated with tariffs on US products such as maple syrup, orange juice, dishwashers, jams, pizza, herbicides and more. The tit-for-tat escalation has continued, with Canadian Foreign Minister Chrystia Freeland, saying “we will not back down.”

The gains from the actions overseen by the Trump administration are dubious. In theory, taxing Canadian and other countries’ steel and aluminum allows US companies to buy local steel instead, but potentially prices will go up because less steel and aluminum is available on the market. This will reward US steel companies, but it will also affect consumer purchasing power as the prices of products using steel and aluminum will rise.

An even more acute trading war, the one between the US and China, has escalated to a cataclysmic level, and has led China to accuse the US of launching the “largest trade war in economic history.”

The US has slapped several rounds of sweeping tariff hikes on imports from China, and after each hike China immediately followed suit. During one round, the US imposed a 10 per cent tariff on over 5,000 Chinese products worth billions of dollars, over $250 billion to be exact, or almost half of the goods the US imports from China.

China responded with its own tariffs on over 5,000 American goods, including liquefied natural gas, mineral ores, coffee, edible oils and more.

By his actions, Trump aims to reduce the trade deficit between the US and China, which amounts to approximately $375 billion, and end what he has called the “unfair trade policies” undertaken by China. After a tense period in which the world held its breath, a truce between the two giants is finally in the works. During the G20 Summit held in Argentina at the end of last year, Trump and Chinese President Xi Jinping held talks on the escalating trade war and how to curb it.

The ongoing negotiations may resolve the trade dispute. In the meantime, Trump will hold off on plans to more than double US import taxes on $200 billion of Chinese goods and to impose tariffs on $246 billion of Chinese products imported to the US each year. China has also made some concessions. It has promised to import more US products to balance the trade deficit between the two countries and stopped exporting fentanyl to the US, a synthetic opioid.

A trade war between the global powers hurts consumers worldwide as the prices of goods are hiked at both ends of the tug of war, making it harder for companies, domestic and foreign, to operate. In fact, tariffs often prove to be counterproductive as they drive up the cost of goods, passing this on to consumers.

Today, as the US and China take a respite, the world is breathing a sigh of relief, hoping the temporary ceasefire in this trade war remains intact. However, the trajectory for more trade wars to come looks set.

*The writer is a political analyst.

*A version of this article appears in print in the 20 December, 2018 edition of Al-Ahram Weekly under the headline: Trading partners or punching bags?

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