The mantra that there are no winners in a trade war still stands
Donald Trump has announced an agreement with the European Union that will leave the US free to focus on China in its trade dispute. But with more US industries likely to seek help in the face of tit-for-tat tariffs, the case for cooler heads to engineer a pullback from the brink only gets stronger
A day after firing the opening shots in a trade war a few months ago by announcing tariffs on steel and aluminium, US President Donald Trump asserted that “trade wars are good, and easy to win”, contrary to conventional wisdom and the lessons of history. Events that have unfolded since then have thrown some light on his misconception. In the latest, having angered Europe with real and threatened tariffs, Trump has announced the broad outlines of agreement with Europe designed to keep the European Union on the sidelines of Washington’s dispute with Beijing, leaving the United States free to focus on China. Of course it is also open to the interpretation of Europe being caught in the middle and still trying to play it both ways.
Trump and European Commission president Jean-Claude Juncker agreed that in return for suspension of tit-for-tat tariffs, the EU would expand the value of imports from America by billions of dollars, including US soybeans priced out of China’s market by tit-for-tat tariffs, and liquefied natural gas, easing reliance on Russian energy – both potential weapons for Beijing in its trade war with Washington. Both sides are to work towards zero tariffs and other barriers on non-auto industrial goods, with the US withholding for now a 25 per cent tariff on European cars.
Imposing tariffs on all or most countries, then resorting to divide and rule tactics by appearing to take away from China and give to Europe, may reflect a strategic and tactical perception of trade wars. But the mantra that there are no winners stands.
President Xi Jinping invoked it at the opening of the BRICS summit of emerging economies, without mentioning the United States, saying “there will be no winner” from choosing confrontation over cooperation. As if to underline his point, US chip maker Qualcomm has been forced to walk away from a US$44 billion bid for Dutch-based chip maker NXP because a deadline for the merger passed without the approval of Chinese antitrust regulators, needed for the deal to be effective in the world’s biggest market.
A graphic illustration of the destructiveness of trade wars is to be found in Trump’s offer of a US$12 billion bailout for US farmers to compensate for retaliation after America struck the first blow.
Will his policies make America great again? Not according to one lawmaker from the farm states, Senator Ben Sasse of Nebraska, who said tariffs and bailouts would just “make it 1929 again” – referring to the beginning of the Great Depression. That may be hyperbole. But more industries in the world’s richest country can be expected to seek help in the face of retaliation if Trump goes ahead with his threats to impose even more tariffs. The case for cooler heads to engineer a pullback from the brink only gets stronger.