At the brink of a global trade war?

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DAN STEINBOCK

As the EU, China and Japan are struggling to re-ignite global economic integration in the Hamburg G20 Summit, the Trump White House may be taking the first steps toward a global trade war.

AS the 12th meeting of the Group of Twenty (G20), the world’s major economies, began in Germany, the location could not have been more symbolic. Hamburg is one of the historical centers of the medieval Hanseatic League, which grew to dominate Baltic maritime trade in Northern Europe during the 14th and 17th centuries.

Yet, weeks before the start of the G20 summit, German Chancellor Angela Merkel has been uneasy about the outcome. She knew only too well that clashes between the police and the protesters would overwhelm the news images and that these confrontations were likely to turn violent with water cannons, pepper spray and the ominous sound of police helicopters over the ailing city.

While Merkel would have preferred to show Hamburg as a microcosm of a new and more compassionate globalization, she had an uneasy feeling that it would be seen as a city haunted by global discord. After Trump’s withdrawal from the Paris climate agreement, Merkel’s anticipation of trouble – perhaps even US withdrawal from postwar global trade – has been increasing ever since the first reports of President Trump’s tense meeting in the White House on Monday, June 26.


Steps toward a global trade war
That’s when a highly contentious internal debate took place in the Roosevelt Room. Amid the edgy exchanges, some two dozen top administration officials witnessed Trump overruling his own Cabinet. Whether by design or by a purposeful leak, he signaled he was willing to unleash a global trade war.

The plan pushed by Commerce Secretary Wilbur Ross and backed by Trump’s chief adviser Steve Bannon (who was not present at the meeting), trade policy director Peter Navarro and senior policy adviser Stephen Miller was opposed by some 22 top White House officials. But it was supported by Trump and his “America First” loyalists. They did not buy the idea that tariffs were bad economics and worse global politics.

During his campaign, Trump had threatened to use 35 to 45 percent import tariffs against those nations that had large trade surpluses with the US. In 2016, the deficit list was topped by China ($347 billion), Japan ($69 billion), Germany ($65 billion), Mexico ($63 billion), and Canada ($11 billion). However, there was a sense of relief after the Trump-Xi summit last April, which seemed to reflect new trade pragmatism. But that reconciliation was predicated on a test period.

After the summit in Florida, the US and China announced a 100-day plan to improve strained trade ties and boost cooperation between the two nations. The end of that period coincided with the start of the G20 summit in Hamburg and escalating trade rhetoric. Trump and his First America loyalists are hell-bent on imposing tariffs—perhaps not at 45 percent, but certainly in the 20 percent range—on steel and then extend those penalties on other imports, including aluminum, semiconductors, paper and appliances like washing machines.

That is consistent with Trump’s decision to bury the Trans-Pacific Partnership deal in his first day in office, deep ruptures in US-EU transatlantic cooperation, and the ongoing efforts to renegotiate the North American Free Trade Agreement.

What next
Commerce Secretary Ross has been tasked with producing a report on the national security threats of cheap steel imports. In the view of Chancellor Merkel, the EU and Japan, tariffs would not harm only Chinese companies, but primarily countries like Canada, South Korea and Japan in addition to the EU, above all Germany.

Consequently, policymakers in Berlin and Brussels are discussing counter-measures against the Trump administration potential steel tariffs. Of course, Brussels would first file a complaint with the WTO. But since such procedures take years to resolve, EU trade chiefs are considering more immediate and impactful measures, such as punitive tariffs on agricultural products like corn, soy or rice. The political goal seems to be to turn American farmers, many of whom voted for Trump, against the White House. At the same time, the EU is building new alliances, as evidenced by the pre-Hamburg free-trade framework deal with Japan.

As the G20 summit ended, the US was left isolated on climate change, while the G20 vowed to “continue to fight protectionism, including all unfair trade practices, and recognize the rule of legitimate trade defense instruments in this regard.” The curious wording suggests a forged compromise. While most G20 nations continue to condemn protectionism, the Trump White House insists on legitimacy for its new deficit-targeting trade policy. In brief, the threat of tariffs will continue to hang over the world economy.

What should be recognized is that the new protectionist pressures are neither something temporary nor associated with Trump’s presidency only. Indeed, there is a longstanding US trend from postwar internationalism and free trade to post-Cold War nationalism and neo-protectionism. While this trend did surface in the aftermath of Vietnam, following the 9/11 attacks and the 2008 Iraq troop surge, it has progressively strengthened since the end of the Cold War in the1990s, as evidenced by longitudinal polls of US publics (see figure).

It is a trend that is reflected by almost three decades of neoconservative dreams of American Empire, Democrats’ liberal interventionism, and the progressive dissolution of American welfare state since the Reagan revolution. Historically, it is this shift that, in the Democratic Party, led grass-root supporters to Bernie Sanders, not to Hillary Clinton. In the Republican Party and among the Independents, it ensured the Trump triumph in 2016.

In brief, the new protectionist pressures are a longstanding trend and will not go away either easily or overnight. And they have only begun.

Dan Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

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