US President Donald Trump last week announced tariffs on another $US50 billion of Chinese goods, prompting China to retaliate by adding extra 25 per cent tariffs on 545 US products — including agricultural goods.
China, as promised, officially announced new retaliatory tariffs on U.S. goods on Saturday.
China’s Commerce Ministry released a statement early Saturday morning insisting the country did not want a trade war, but would nonetheless “fight back vigorously” now that the U.S. is starting one. “We will immediately launch tariff measures that will match the scale and intensity of those launched by the United States,” the ministry said,
It is exciting to watch the trade wars and see who will come out winners and losers. Most analysts opine the United States are certain winners thanks to its economic strength, but the truth is that winners and losers exist only in the short-term perspective. In the long run there are only losers.
China has said that “all economic and trade agreements reached by previous negotiations will be nullified” when the new tariffs go into effect. This includes purchase agreements which would offset trade imbalances.
US trade policy is hurting markets. At the end of March, the U.S. stock market tumbled 700 points in a single day on news that President Trump would impose tariffs on Chinese exports. Volatility and uncertainty continues as Canada, China, Europe, India, and Mexico join the trade wars.
Yet the global economy is not descending into chaos. That’s largely because the protagonists are more constrained than the headlines suggest. Indeed, despite threats of major retaliation, the World Trade Organization (WTO) tightly restricts what countries are allowed to do. In other words, the legal discipline of the WTO makes things more predictable than they appear.
There are no solutions available to the conflicted parties other than negotiations. Some say that Trump’s plan all along was to force negotiations, so if that’s the case, there were far less risky ways to do it. One reason for Trump’s success in playing the unpredictable card is that he never announces his strategy, and what’s more, Trump has no strategy but to win the little steps as a gives away the important principles.
Be that as it may, recent trade tensions serve as a poignant reminder that the global economy is not borderless. The good news is that the WTO’s legal disciplines are working. For all the talk of trade wars, the global economy looks nothing like it did in the 1930s. And in an orderly world, Trump does not function.
