Trade between nations makes them interdependent and lessens the propensity to war. The more trade any two nations have, the more peace will there be between them. Building peace is one of the goals of the World Trade Organisation, the premier international body set up in January 1995 to ensure free and fair trade between nations.
But instead of peace, we are now witnessing a world war or, to put it more precisely, a world trade war. Unlike in shock-and-awe hot wars, in economic wars, killer weapons such as bunker-busting missiles, banned white phosphorus, depleted uranium and napalm bombs are not used. Yet economic wars kill – kill millions. In Iraq during the decade-long United States-sponsored international sanctions, one million Iraqis, half of them children, died due to lack of medicine and food. Asked about the deaths of 500,000 Iraqi children due to sanctions, the then US Secretary of State Madeleine Albright said, “This is a very hard choice, but the price… is worth it.”
The present world trade war has nothing to do with the WTO. Rather, it was solely the work of one man, Donald Trump, who appears to be thriving in chaos. Unfortunately, he is also the President of the United States and is increasingly proving that he is a misfit to govern a country that has produced great statesmen such as George Washington, Abraham Lincoln and Thomas Jefferson, to name a few.
The tentacles of his trade war have reached many fronts – China, the European Union, Canada, Mexico, Russia, Iran and, this week, Turkey, for he thinks trade wars are good and winnable.
Sounding more like a trade-war version of an Adolf Hitler, than a knee-jerk protectionist, Trump tweeted on March 2, 2018: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore--we win big. It’s easy!”
Trump triggered what is termed by some analysts as the world history’s biggest trade war when he slapped in January a 25 percent tariff on imported steel from China, Europe, Canada and Mexico, prompting tit-for-tat measures from the affected countries. The escalation of the trade war is shaking the foundation of free trade.
Last month he imposed a further US$ 34 billion worth of tariff on imports from China. In retaliation, China also imposed US$ 34 billion worth of tariffs on US goods and warned Beijing would not hesitate to hit back dollar-for-dollar if Trump took further action.
If this was not enough, Trump this week targeted Turkey, imposing punitive duties on that country’s aluminium and steel exports. The measure was connected to Turkey’s refusal release a US preacher, who Turkey says is complicit in the 2016 botched coup attempt against the Recep Tayyip Erdogan government. Following Trump’s punitive measure, Turkey’s economy has taken a beating, with its currency, lira, losing 20 percent of its value.
Adding more chaos to the world trade order, Trump has reimposed sanctions on Iran. Apart from dealing a blow to Iran’s economy, the sanctions have also hit developing nations owing to soaring fuel prices. Last week, the Trump administration also imposed sanctions on Russia over the alleged nerve-agent poisoning of an ex-Russian spy and his daughter in the British town of Salisbury. Russia has described the sanctions as “a declaration of economic war” and warned of a fitting response.
Why is the US waging a trade war? Probably, Trump and his hardline advisors are caught up in a Thucydides trap, a term popularised by American political scientist Graham T Allison. Quoting Thucydides, the fifth century Athenian historian, Allison in a New York Times article last year explained that when a rising power – in this instance, China -- causes fear in an established power – in this instance, the US -- it escalates towards war. Thucydides wrote: “What made war inevitable was the growth of Athenian power and the fear which this caused in Sparta.”
With the world powers being armed with planet-pulverising nuclear weapons which only guarantee mutually-assured destructions (MAD), the US cannot afford a military war with an equally powerful China. Hence the option is the economic war.
Since the end of World War II, the US had been the beacon of free trade. It scoffed at centrally controlled economic policies of the Soviet Union and other communist nations. Be it the historic Bretton Woods talks in 1944, the decision to end the gold standards in 1971, or the General Agreement on Trade and Tariff (GATT) deliberations that led to the formation of the WTO, the US had hit out at protectionism and championed free trade and liberal monetary and economic policies. Many a time, Washington had accused Japan and China of deliberately devaluing their currencies and adopting unfair trade practices.
But today, under Trump, the US sees WTO, which it had helped set up, as a hostile organisation. “The WTO has been a disaster for this country,” Trump ranted in March. “It (WTO) has been great for China and terrible for the United States, and great for other countries,” he said.
Today, instead of the US, it is China which appears to be pushing for more open borders, with its Belt-and-Road Initiative being promoted as a world trade booster.
In China, policymakers, academics and the people see Trump’s trade war as part of Washington’s strategy to check China’s rise and urge the government to take tough countermeasures.
The currency war is, probably, one such countermeasure, though the yuan has suffered a nine-percent drop due to Trump’s trade war salvos. Undercutting the US dollar, countries such as China, Russia and Iran are increasingly doing business bypassing the dollar. China is considering a move to price oil in yuan linked to a gold-backed futures contract. The yuan officially became a world reserve currency in November 2015. Meanwhile, Russia and Iran have signed an agreement to avoid the dollar in their transactions. To overcome hurdles related to US sanctions, countries such as India have decided to buy oil from Iran by paying in local currency.
These developments have posed a serious threat to the US dollar as a world currency. The consequences could be devastating not only to developing countries, but also to the US itself. In addition, a slowdown of China’s economy could generate worldwide tremors or lead to a global recession. Trump should wake up to these dangers.