Background papers

US Tariff Wars: World Trade on the Brink

Earlier this year, the US announced 25% tariffs on Steel and 10% tariffs on aluminum from the EU; they also announced similar tariffs on products coming from Canada, Mexico, China and other countries. In retaliation, most countries including the EU has imposed reciprocal tariffs hitting steel, aluminum, agricultural crops, manufactured good, tobacco and alcohol.  Until the election of POTUS 45, the US was the main proponent of free and unfettered trade and now it is destroying a system which has lifted millions of people all over the world out of poverty, it has allowed economies of lesser developed countries to develop and it has collapsed the segregated growth of economies in separation by bringing them into an interdependent web of collaborative competition. Why did the US make this move?

The answer is simple and disappointing. It was not the US that made this move, it was one man who was elected on a protectionist agenda to the most powerful position in the world. Despite his prestigious and public persona as a business person, President Donald J. Trump does not understand  the rudiments of trade and marketplace economics. He is slaying David and he is freeing the dragon, the dragon being nationalist agendas in global economies and trade.

In retaliation to US tariffs which hit mostly the worker in the factory that has no job because suddenly orders have dried up, The EU has imposed tariffs aimed at a array of industries which really hits the heartland of Trump voters  including farmers, bourbon growers and consumer good producers. Negative fallout like in EU countries and their client/service industries is on common people. Workers and the middle class world over will pay the price of tariff wars.

Why did POTUS do this? To protect about 1 million people in the USA living in the rust belt – in states that used to produce large amounts of steel and metal. These people and towns can never come back to a point of full employment and most of these industries have been closed for a long time. But because Trump is a dogmatic leader he insists on protecting the 1 million voters to hurt the huge soft underbelly of the US – its farmers and consumer good industry. Is the trade off not clear? is it worth it?

Apparently everyone looses by tariff wars. The only people winning are those that are still on the margin of global free trade – Russia, some Eastern European countries. Everyone else looses. Republicans will loose once the retaliatory tariffs go into effect.

Truth is that WTO should impose punitive action on the USA.  The propensity to slide into   protectionism is extremely negative for world economy and stability, and it will be resisted by a majority of countries. As we move forward the US might be the only country isolated outside the free trade system now linking the rest of the Americas, Europe, Asia and Africa. The truth is that the US might choose to go down the path of protectionism but the rest of the world is not going to impose the same constraints on reciprocal trade relations with each other – everyone will continue in free unfettered trade and the US will be protected by its tariffs in isolation.

 

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