Trump’s Tariff Plan May Shatter Pillars of the World Trade Order – Academic
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The Trump administration’s decision to unilaterally increase import tariffs on steel and aluminum could trigger a domino effect worldwide thus affecting the global economy, Huang Weiping, professor at the People’s University of China, told Sputnik.
The US attempt to unleash a trade war on China creates a dangerous precedent which could undermine the very principle of free trade, Huang Weiping, professor at the People’s University of China, warns.
“If a trade war begins between China and the US it won’t imperil financial flows since these countries are two large economies and China has a sustainable balance-of payment surplus in bilateral trade with the US,” Huang told Sputnik China. “However, the situation, when trade between two countries is guided by the principle of mutual sanctions instead of free trade, it creates a dangerous precedent. Thus, in the future any country could unilaterally impose any sanctions [against its competitors]. And then the entire world trade order will be destroyed.”
According to the academic, it would be the worst outcome possible for the world. He emphasized that one should understand that it has always been very difficult to establish the rules of the game. On the flip side, it doesn’t take much time and effort to destroy everything, Huang stressed.
Earlier, US President Donald Trump imposed 25 percent and 10 percent tariffs on steel and aluminum imports, respectively, with an initial exemption for Canada and Mexico. It was reported that the Trump administration “has opened the door to exemptions” for other allies as well.
Trump has justified the move by the necessity of protecting local American producers and, consequently, creating new jobs in the metal industry. However, according to the non-profit organization Tax Foundation, these measures could actually have the opposite effect: Additional duties on aluminum and steel imports may cost US firms about $9 billion a year which would be “eventually passed on to consumers through higher prices.”
Furthermore, the independent tax policy non-profit suggests that “while it may be easy to dismiss the impact of a roughly $9 billion tax increase in a $20 trillion economy, to put it in perspective, the new tariffs proposed by the Trump administration far exceed the tax benefits from the recent expansion of section 179 on expense provisions for small businesses in the Tax Cuts and Jobs Act.”
Potential US-Chinese Trade War Will be Catastrophic for Everyone
Although Trump’s recent measure is unlikely to deal a heavy blow to Chinese steel and aluminum producers, the country’s Minister of Commerce Zhong Shan warned that a potential trade war between China and the US would be disastrous not only for Beijing and Washington, but the rest of the world.
“There will be no winner,” Zhong told journalists on March 11. “A trade war will be catastrophic for China, the US and the rest of the world.”
He stressed that China does not want to begin a trade war and will not unleash one on the US; however, Beijing will do everything to protect Chinese national interests. Zhong did not specified what kind of retaliatory measures China could take.
For its part, the European Union has openly threatened the US with the introduction of 25-percent tariffs on American motorcycles, boats, jeans, cosmetics, t-shirts, bourbon, orange juice and corn. In addition, Brussels is considering lodging a complaint with the World Trade Organization (WTO) over Trump’s recent move.
“Recently, we have seen how it is being used as a weapon to threaten and intimidate us. But we are not afraid, we will stand up to the bullies,” European Trade Commissioner Cecilia Malmström told journalists Monday.
Tokyo is likely to follow in the footsteps of the EU and challenge the issue at the WTO, according to Japan’s Minister of Economy, Trade and Industry Hiroshige Seko.
US Tries to Prevent the Transfer of High Technologies to China
Meanwhile, Trump remains concerned about a huge balance of payments deficit with China. According to Zhong, the problem could be solved if the US lifts restrictions on the export of high-tech products to China.
However, it is unlikely that the Trump administration will accept this proposal. The US and its European allies appear to be afraid of China’s swift technological rise and are trying to prevent the transfer of high technologies to China.
The US authorities have repeatedly blocked the merger of US companies with Chinese firms citing national security concerns. For example, in September 2017, the Trump administration barred a China-backed firm from buying US-based chipmaker Lattice.
To tackle the trade deficit problem Washington would prefer to sell China more finished goods, raw materials and agricultural products. However, if a trade war begins, Beijing may impose restrictions on these supplies. In this case sooner or later the two countries would have to sit down at the negotiating table.