A trade war instigated by the Trump administration is the last thing the global economy needs right now.
Reaction by the stock markets around the world alone should be taken by the White House as a signal that there is very little upside for the United States in a tit-for-tat trade war.
On Friday, Philippine share prices sank and the peso weakened further amid renewed fears the world could be headed toward a trade war after US President Donald Trump announced the imposition of tariffs on $60 billion worth of Chinese products.
Trump could also be underestimating the pushback from Beijing and Brussels.
China has expressed readiness to raise tariffs on an initial $6 billion worth of American exports, with its commerce ministry warning that while “China does not want to fight a trade war, [it]is absolutely not afraid of a trade war.”
French President Emmanuel Macron said Europe would respond “without weakness” to Washington’s threats of tariffs on steel and aluminum; at the end of a European summit in Brussels, he said: “Nothing should be addressed when it is with a gun to your head.”
Trump seems to be ill advised on his protectionist trade policies. The US economy’s lack of competitiveness in trade is a structural issue in the economic sense and cannot be resolved by tariff policy.
There are several reasons why the US incurred a record $375.2-billion trade deficit with China last year, and it’s not because Washington’s trade policy is lax.
The Trump White House appears to have partly identified the cause of the yawning trade gap with China: the new tariffs are being imposed on Chinese goods whose technology may have been “stolen” from the US.
This is a losing cause in a global and digital economy where technological obsolescence is swifter than ever.
First of all, there are mechanisms to punish Chinese manufacturers for copying American technology. Eventually, however, American manufacturers need to adapt, innovate and make it hard for copycats to succeed.
This is not a tall order for Japanese, Swedish, British and many other successful global enterprises, whose products may have been copied by China at some point.
Their response was to innovate further, not pressure their home governments to launch a trade war with Beijing.
World Trade Organization (WTO) Director General Roberto Azevêdo made a timely reminder on Friday at the meeting of the body’s Council on Trade in Goods: trade powers should set the example by taking advantage of, and not bypassing, the rules-based global trading system.
Azevêdo’s words bear repeating here: “Actions taken outside these collective processes greatly increase the risk of escalation in a confrontation that will have no winners, and which could quickly lead to a less stable trading system.”
He added: “Disrupting trade flows will jeopardize the global economy at a time when economic recovery, though fragile, has been increasingly evident around the world. I again call for restraint and urgent dialogue as the best path forward to resolve these problems.”
Indeed, a trade war will disrupt not just the US and China, but the entire global economy, including smaller but nonetheless trade-dependent players such as the Philippines and other members of the Association of Southeast Asian Nations.
Trump risks the global economy’s fragile health by choking its lifeblood, the free flow of trade.