WASHINGTON, DC — Following America’s disastrous 1930 Smoot-Hawley Tariff Act, the subsequent international trade war, and eventually World War II, the United States went on to lead the world toward a more open multilateral trading system. In 1947, the international community adopted the General Agreement on Tariffs and Trade, which would later become the World Trade Organization. Under this international body, trade was bound to the rule of law and the principle of non-discrimination among trading partners. The system has been a huge success.
Over the past seven decades, world trade has grown almost twice as fast as real output. And owing to US leadership, there have been ongoing multilateral negotiations to lower tariffs, remove other barriers, such as quantitative import restrictions, and facilitate trade expansion. But in 2017, US President Donald Trump’s new administration abandoned America’s longstanding commitment to the open multilateral trading system, opting instead for a power-based approach to international economic relations. Under the new dispensation, “might” supposedly makes “right”.
The result has been disastrous. Trade relations between the US and its major international partners are now fraught. The global growth rates of both trade and GDP have fallen sharply, and growth projections are being downgraded as further evidence of the economic damage caused by US trade policies comes to light. The Trump administration has also forced a “renegotiation” of the South Korea-US Free Trade Agreement, with the main result being to restrict imports of steel from South Korea and to prolong a US tariff on imported light trucks.
And then there is the Trans-Pacific Partnership, which the Obama administration negotiated with 11 other Pacific Rim countries, excluding China, and signed on February 4, 2016. Immediately upon taking office, Trump withdrew America from the TPP, leaving the remaining signatories to salvage the deal, which they have done under Japanese leadership. As a result, US exports to those countries are now subject to much higher tariffs than is trade among the remaining 11 members.
Then came Trump’s trade war against China, which has both undercut global trade and brought the bilateral relationship to its lowest point since the aftermath of the 1989 Tiananmen Square massacre. Even with the “phase one” agreement that has just been signed, the average US tariff on imports from China will be around 19 per cent, up from 3 per cent before the trade war. Worse, the US has gained little from the process.
Yes, the latest deal includes a Chinese commitment to import more US agricultural and other products. But to represent a “gain”, those additional purchases would have to be great enough to compensate for the lost exports of 2018-2019. Trump’s trade wrath has affected other countries as well. The US has imposed additional tariffs on imports from Turkey, Brazil, Argentina and several developing countries, including India, which would otherwise be eligible for preferential tariff treatment under US law. Now, US-India relations are deteriorating. The US has also deployed economic and secondary sanctions against a wide range of countries.
While some sanctions are obviously justified, such as those against countries involved in terrorism, the Trump administration has expanded the use of this tool with abandon. The US is now enforcing sanctions against more than 1,000 countries, businesses, and individuals per year.
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