PRESIDENT HASN’T A CLUE OF THE EFFECTS OF A TRADE WAR

…The Port of Singapore, would be devastated by a trade war w/ China

Unilateral tariffs are not the solution.

It is appearing that regardless of how it will hurt all those US rust-belt and farm states that put Trump in the White House, Trump will still get his wished-for trade war.

Trump has been bitching about the trade deficit with China for years, and that they are ripping off the US, but he is totally ignorant about who would get hurt in his trade war.

Unfortunately, today, there is broad political support for a trade war here in America, but they no not actually know what a trade war would do to the country.

It was the American business community that had advocated for China’s joining the World Trade Organization (WTO)  However, these same people now feel at a disadvantage for doing business in China. They feel, with real justification, that the playing field is too uneven.  China’s market access is limited and foreign investments are restricted, especially in the financial and technology sectors. Trade arrangements and concessions to China were made because China was only about 5% of the world’s Gross Domestic Product (GDP).  But today, China’s share has risen to approximately 15%.

So the trade friction between China, the United States, and other democratic countries has been brewing for some time.

Now, with the Trump administration’s announcement of unilateral tariffs on imports targeted directly at China, the idea of a trade war has never been clearer.

But unilateral tariffs are not the correct solution.

If a trade war breaks out, it will totally undermine the rules-based system that has allowed for global prosperity since the end of World War II. Countries around the world, big and small, will be seriously affected by a trade war, and definitely not for the good.

All trade disputes between any major trading countries should be resolved within the WTO, not by the current resident in the White House.

Most economists have pointed out, that when assessing economic relationships, what matters is not a country’s bilateral trade balance with a specific trading partner.  It’s the overall trade balance with the rest of the world.  The cause of a country’s trade deficit lies totally within that country. 

A trade deficit occurs because of a very basic fact that would be understood by a first-year college student in Economics 101.  It is basically the “result of a country consuming more than it produces”, it's that simple, and it is neither caused nor cured by creating trade restrictions.

The US and China have the most important bilateral trade relationship in the world. And both countries have benefited from an open, rules-based order and multilateral trading system. This system has fostered economic cooperation within the Asia-Pacific region and increased inter-dependence among Asia, the United States, Europe and the rest of the world.

If we take the small nation of Singapore as an example of who would be devastatingly affected by a trade war, just consider the following.

Asia is the fastest-growing export market for American goods and services and Singapore has the world’s second-busiest port (Hong Kong is the first) and it is the fourth-largest financial center,  Singapore is a global hub that virtually connects the economies of both the United States and Asia.   The trade that flows through this port is more than three times Singapore's  GDP.  A trade war between the two largest economies in the world will have a huge, negative impact on Singapore.

The short-sided attitude of individuals such as our president will bite back at the US if a trade war were to become a reality.

No one had the idea that in such a short time, China would become such a behemoth trading partner.  China did not even join the WTO until 2001, and no one expected that its weight in the global economy would become what it is today.  Because of that growth, it has shifted the strategic trade balance.  However, China has continued to declare its commitment to uphold its liberal market and the openness of its trading system.

The Asian Infrastructure Investment Bank and the “Belt and Road Initiative” are two major efforts by China to strengthen trade and investment ties.  These moves have also been acknowledged and welcomed by President Trump.

In addition, most Asia-Pacific countries are continuing to pursue trade and economic liberalization.  But the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership are both examples of initiatives that will not compensate for the damage caused by a US-China trade war.

Beyond the obvious economic loss, a trade war would strain the ties between the United States and China and it would make it harder for them to cooperate on other pressing issues such as the de-nuclearization of the Korean Peninsula.  And that issue is much more important to the US and its allies in the area such as South Korea and Japan, than it is to China.

In addition, the effect of a trade war to regional security issues and to dealing with climate change would all be highly negative.

None of these and other important issues can be dealt with, without the full participation of both the US and China.

If any of these disputes escalated and destabilized the relationship between the United States and China, the consequences for the world could be disastrous.

Serious competition between a democratic US and the communist nation of China is to be expected.  But this competition must take place within the framework of both inter-dependence and a generally accepted set of international rules.

Ultimately, trade wars can be just as important and devastating as a real war between two major nations.  The peace, security and stability of the world could easily become unstable if the current relationship between the United States and China were to go south.

There is too much at stake regarding the potential devastating effects of a prolonged world-trade war……..and our president doesn’t have a clue..

Copyright G.Ater  2018