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Trade War


The World

The World has now come to realise that the United States (US) President Donald Trump is indeed executing what he promised to do during his presidential campaign - America First! As a result, the US under the Trump administration is retreating itself from the global stage and is abdicating from its global leadership responsibilities, that it has created, espoused and advocated since World War II. Trump's actions, in terms of trade, geopolitics and foreign policy, are so extreme and radical that there is no precedent from the past history. As a result, the other world leaders are still struggling and scrambling to find proper countermeasures against Trump's unilateral actions. 


At the beginning of Trump's presidency, many country leaders thought that his presidential campaign rhetoric would just remain as such and that the Trump administration would come to realise that it is indeed in America's best interests to remain within the global multilateral system, that it has itself created. However, there are no words to describe their surprise and disappointment, when Trump is going about dismantling piece by piece everything that America built and created in the global system since World War II.

"The US under the Trump administration is retreating itself from the global stage and is abdicating from its global leadership responsibilities, that it has created, espoused and advocated since World War II. "

Trump's Warning Shots in 2017

Right after his inauguration in January 2017, President Trump started to put into action his "America First" promises by signing a presidential memorandum to withdraw the United States from the Trans-Pacific Partnership (TPP) free trade agreement (FTA), that the US negotiated with 11 other countries within Asia Pacific over many years under the Barack Obama administration. This was the first anti-globalisation and anti-free trade action by President Trump. 


In February 2017, Trump ordered his newly appointed US Trade Representative Robert Lighthizer to review the other free trade deals - the North American Free Trade Agreement (NAFTA) and the US-Korea Free Trade Agreement (KORUS). During the Reagan administration, Lighthizer was a deputy US Trade Representative when he implemented measures to block imports from Japan using threats of quotas and tariffs. Trump and Lighthizer are using the same playbook to block/limit imports from the main US trade partners. 


Last year, at several summits with its allies in Europe - North Atlantic Treaty Organisation (NATO) summit in Belgium (May), G7 summit in Italy (May) and the G20 summit in Germany (July) - Trump publicly admonished the European leaders for their low defense expenditures for NATO as well as clashed with various leaders about the European trade surplus with the US, particularly Germany.   

The US has the biggest trade deficit with China and in August 2017, Trump specifically ordered the US Trade Representative Lighthizer to investigate China's trade practices with respect to intellectual property under Section 301 of the Trade Act of 1974. 

During Trump's Asia tour last November, he visited Japan, South Korea and China as well as attended the Asia-Pacific Economic Cooperation (APEC) summit in Vietnam and the Association of South East Asian Nations (ASEAN) summit in the Philippines. Despite signing many huge commercial deals at each stop, in his speeches, Trump publicly chided his hosts and other country leaders about the huge trade deficit that the US has with the various Asian countries.

2018 is the Year of Action for Trump


With the moderate voices like former Secretary of the State Rex Tillerson and Gary Cohn, former Director of the National Economic Council, being sidelined, Trump together with his trade hawks like Robert Lighthizer and Peter Navarro put into action plans to impose tariffs on trade. Trump started the year by slapping a tariff of 30% on solar panels (after the first 2.5 gigawatts of cells) and 20% on washing machines (50% on more than the initial 1.2 million units) under Section 201 of the Trade Act of 1974. These trade actions were mainly targeted at imports from China and South Korea. 


Last March, with Tillerson and Cohn finally removed from his administration, Trump had free rein and focused on steel and aluminum imports. Under Section 232, tariffs of 25% and 10% were slapped on steel and aluminum coming to the US respectively. Although Trump's main focus is on China massive trade surplus with the US, these tariffs on steel and aluminum hit mainly the American allies - Canada, Mexico, the European Union, Japan and South Korea - that are the major exporters of these commodities to the US. 

Despite the fact that Trump mentioned that "trade wars are good and easy to win", none of those trade partners affected by the Trump's tariffs on steel and aluminum are backing down. In fact all of them have slapped tariffs on an equivalent amount of American goods. China and Mexico each imposed tariffs on $3 billion worth of American products. The European Union and Canada retaliated on $3.2 billion and $12.5 billion worth of US imports respectively.

Robert Lighthizer and Peter Navarro.jpg

Robert Lighthizer    &    Peter Navarro

In early July, Trump authorised tariffs of 25% on $34 billion out of the initial $50 billion identified products imported from China. The response has been immediate from China with retaliatory tariffs imposed on an equivalent amount of US products coming to the Chinese market. Among these US products, China specifically targeted the American soybeans, representing about $12 billion worth of exports in 2017, from American farmers who voted and support Trump.

Furious at all these retaliatory measures against the US, Trump upped the ante by threatening to impose tariffs on all Chinese imports as well as on all European cars coming to the US. The International Monetary Fund (IMF) is already warning that Trump's global trade war will have a negative impact of 0.5% on global growth by 2020, costing about $430 billion in lost gross domestic product in the world.


Business groups like the US Chamber of Commerce, the Alliance of Automobile Manufacturers and others are already warning that Trump's trade war will indeed have a significant impact on their business activities, that will consequently lead to massive job losses in the US. Farmers are already feeling the heat of the massive drop in prices of soybeans and other agricultural products, with China stopping all these imports. With tariffs on Chinese imports, American retailers are also voicing their concerns, that eventually, American consumers will bear the brunt of these these tariffs. 


Dealing with Future Uncertainties

Trump's brinkmanship triggering these tit-for-tat responses from other countries is endangering the world economy. All these trade measures are definitely affecting the global supply chains as well as global trade. As a result, with all these uncertainties, companies are holding on to their investments. Eventually global growth will be impacted. 


At the moment, it does not seem that Trump will stop or back down on any of his protectionist trade actions. In fact, Trump's supporters seem to embolden him to take even more extreme measures, even if the future consequences are potentially severe on the US economy and globally. As for the US trade partners like China and Europe, they are being put in a dilemma, where they can not stand down as well. Otherwise, Trump will continue to disrupt the global trade system and put at risk the whole world.


America under the Trump administration is changing dramatically. From unilateral and protectionist actions on trade with total disregard to global trade rules to brinkmanship on the global stage, the US President Donald Trump is pushing hard for his America First agenda. Despite the fact that the responses from the other countries have been slow and uncoordinated with differing interests, countries like China and Germany with the European Union are being pushed to unite their efforts to be a bulwark to Trump's global disruption. 


In the coming months, we have to hope that together with other countries, the Trump administration will have to come to a compromise, that will look like a win-win solution for all parties. Otherwise, let's all prepare for the worst.  

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