The Trade War has Begun and it Hurts
Ved Nanda is Evans University Professor and director of the Ved Nanda Center for International and Comparative Law. He has taught at the University of Denver's Sturm College of Law since 1965. Nanda is past president of the World Jurist Association, former honorary vice president of the American Society of International Law and a member of the advisory council of the United States Institute of Human Rights.
What was considered a looming trade war a few weeks ago is now for real, as trade disputes are rapidly escalating.
On June 15, President Donald Trump announced 25 percent tariffs on $50 billion of Chinese goods, including agricultural and industrial machinery, to begin July 6. China responded by accusing the US of blackmail and in a tit-for-tat it introduced “the same scale and equal taxation measures” on US goods, such as agricultural products, aerospace parts, communication technology, cars, and seafood.
Then, on Monday, Trump directed U.S. Trade Representative Robert Lighthizer to identify $200 billion for additional tariffs to go into effect “if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced.” Trump further said that if China increases its tariffs again, the U.S. will pursue “additional tariffs on another $200 billion of goods.” The administration is also expected to restrict China’s investment in U.S. technology.
The administration justifies its trade measures against China because of China’s unfair trade practices and its theft of American intellectual property. They could also be a response to Beijing’s ambitious industrial policy called “Made in China 2025,” which commits Beijing to spending billions of dollars on subsidies to ensure that Chinese companies dominate the home market. This policy aims at making China into the global leader in high technology industries and keeping foreign business groups out of these economic fields.
As China imports merely $130 billion annually of U.S. goods, it cannot match the U.S. action. Hence, it has decided “to fight back firmly” by taking both quantitative and qualitative measures. It could, for example, increase safety inspections and delays at customs, or even boycott American goods. American companies which have huge investments amounting to more than $200 billion in China’s fast-growing market, will obviously be hurt.
Will the American action lead to China blinking and negotiating a settlement? This is a huge gamble, for, if it doesn’t, the escalating trade disputes will adversely impact already straining markets and global growth. According to Trump, “Trade wars are good, and easy to win.” But if history is a guide, tariffs hurt consumers, who are burdened with higher costs. Economists all over are critical of such measures.
Earlier, in March, the U.S. had imposed a 25 percent tariff on all steel imports and 10 percent on aluminum, justifying it on the grounds of national security. The European Union, Canada, Mexico, and India are outraged and have retaliated by imposing tariffs on U.S. goods. India is raising tariffs on imports of 30 American goods by up to 50 percent. The trade fight with Canada is hurting builders with 20 percent lumber tariffs and steel prices have rapidly risen. Mexico has placed tariffs on imports from the U.S. of pork, cheese, Bourbon, whiskey, and steel. The European Union is targeting Levi’s jeans, Kentucky Bourbon and Harley-Davidson Motorcycles, thereby aiming to hurt constituents of Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan. Colorado’s agricultural producers, especially those in corn and wheat, will also be hurt.
As Trump has threatened to pull out of NAFTA, Jim Polsfut, a local leader with longstanding business ties in Mexico, told me that changing the terms of trade must not be done by taking unilateral action as it will likely destabilize the present delicate balance of U.S.-Mexico relations.
Is it logical to practice such even-handed alienation against both allies and adversaries? Instead of unilateral tariffs and going it alone, the U.S. should be working with, rather than against, its allies. Also, multilateral trade rules under the multilateral system serve the U.S. better than bilateral transaction arrangements.