U.S. Trade Wars

G-7 summit ended in controversies and clouds of confusion with hopelessness following the EU to Helsinki at the NATO conference. Mr. Trump showed little interest in the future of NATO rather he continued to question it. NATO has been the cornerstone of U.S.’ policy and strategy for decades irrespective of the change in command. However, in recent times, U.S. has started to shrug off its responsibility bit by bit. While we saw its first real glimpse during the Obama administration, Mr. Trump has accelerated the process. 


He started with reversing the policies and commitments of U.S. at multiple fronts like immigration, security, human rights and trade etc.  Nevertheless, trade holds a special place in Mr. Trump’s policy. By using his authority under Section 301 of U.S. Trade Act 1974, U.S. administration thinks it is playing its role in delivering the President’s promise to “Make America Great Again”. In reality, U.S. is shooting at its own foot. 


It is important to understand that modern global trade is predominantly characterized by supply chains, which involve multiple actors and countries. While writing for Brookings, economists David Dollar and Zhi Wang concluded that almost two-thirds of trade takes place in supply chain.1 During the process it crosses many borders and involves stakes of many countries. Many American firms outsource part of their work to China for cost efficiency, for example; computer industry along with other high-tech products manage supply chain through imports from China. It also involves countries like Taiwan, EU and others. Moreover, less than 50 percent of the value added belongs to China in these sectors. Another interesting element is that 37 percent of U.S. imports from China are intermediate products. These are outsourced because cost of production is less in China in comparison to U.S. Firms see it as an opportunity to make their products more competitive. This is why any type of tariff or sanction will actually hurt U.S. companies. It may be a good measure in the short run to acquire some benefits but it will be a recipe of disaster or economic crisis in the long run.


Apart from economic dimension, actions such as these are also seriously impacting the liberal world order, which U.S. itself created after the World War II. The liberal world order was created to sustain peace and prosperity and prevent conflicts and wars. Robert Kagan, a senior fellow in the Foreign Policy program at Brookings argues that the liberal order was defined to avoid pre-world war conditions for the purpose of sustaining peace and prosperity in the world.2 He explained three dimensions of problems which led to the world wars. First, great powers and regional powers were engaged in conflicts and war of dominance. Germany was prompting conflict and France was also on the same boat in Europe along with other actors while Japan was behaving as an aggressor, engaging China and other countries in conflicts in Asia and the neighborhood.  
Second, countries were moving towards more restriction on trade and economies. States were trying to safeguard their own economies at the expense of others. All major countries including the British Empire, U.S., Japan, Germany, France and others were on the same page. Third was the rise of fascist dictators and regimes. Suddenly there were leaders like Hitler and Mussolini in power. Factors like these made these countries more difficult to handle at a global level. 


Due to these challenges U.S. along with allies tried to create a system, which acts as a buffer and helps in tackling these challenges. However, this system – “liberal world  order”, from the very beginning, became hostage to the interests of U.S. First glimpse of a diversion came with the introduction of Marshall Plan in Europe. U.S. ignored its allies of World War II, including the USSR. Stalin wanted to join the initiative but U.S. did not include him. While the Cold War ultimately ended with the collapse of the USSR, its effects can still be felt in different forms in Vietnam and Afghanistan etc. 


U.S. has always blamed the USSR for hindering the creation of an ideal or at least a practical liberal world order. Collapse of the USSR provided an unprecedented opportunity to implement the dream of a liberal order. Instead of engaging all the states it took another route. It created new enemies and targets and started to give impression of an unchallenged power with every other country falling in line. Its dominance led to many wars and conflicts all over the world including the Afghan War, Iraq War, crises in the Middle East, North Africa and Libya etc. Moreover, it also created serious doubts about the moral superiority of the liberal order.


These unilateral actions came with a heavy price for U.S. at all fronts particularly with regards to its economy, legitimacy and image. The Financial Crisis of 2007 which shook the economic basis of U.S. is considered one of the by-products of these adventures. U.S. had to request China to come forward to its aid and rescue it from the free fall of markets and the financial sector. China graciously gave a helping hand. Rather than fixing the basic flaws, U.S. criticized and blamed other countries for its weak economy. The Obama administration tried to manage it but with divergent policies. He introduced the concept of Pivot to Asia to strengthen its alliance in Asia but many European countries see it as an attempt to distance itself  from Europe. This policy shift is also perceived as U.S.’ attempt to contain China. U.S., for sometime, has been openly pursuing its containment policy. Obama also tried to build on TTIP (Transatlantic Trade and Investment Partnership) but Mr. Trump backed away from it and reversed the norm of free trade. 


The current trade war with China, Canada, Mexico, EU and other countries is creating chaos all over the world. All these countries are retaliating in one way or the other which is making this situation more complicated. The gains which U.S. is getting at this moment will disappear very soon. Owing to the reality of supply chain dominance many countries are also being impacted indirectly. Most of the indirectly impacted countries are U.S. allies. So, in pursuance of containment of China and the dream to “Make America Great Again”, U.S. is also making it difficult for its allies to do business. Situation pertaining to security and peace is not faring well either as we are witnessing conflicts in different parts of world which has all the elements and potential to expand. There is also rise of “strong men” across the world including Mr. Putin, Mr. Modi and Mr. Tayyip, etc. It seems the world is going back to the pre-World Wars era. The unfortunate reality is that the creator of liberal world order, U.S., is after it to destroy it. It is on its way to undermine the norms and ethics of the order which were the results of a long and hectic debate. While once it was champion of free trade, environment compliance, peace and security and liberal democracy, it is now acting against them.


The obvious actions taken to undermine international institutions like WTO, UNFCCC, the UN and others etc. and to use existing IFIs for advancing its own interest is eroding the very values it claims to guard. There is one interesting twist in global affairs; China is willing to take the lead on global affairs and save the global order. The state always considered on the side of fence has now emerged as the protector of the order. President Xi Jinping showed commitment to adhere to WTO and lead the way for implementation of Paris Agreement on Climate Change. U.S.’ attitude is compelling countries to create and look for other institutions. China’s commitment can be seen in the creation of Shanghai Cooperation Organization (SCO) and new financial institutions like Asian Infrastructure Investment Bank (AIIB). U.S. tried to stop its allies from joining it but many of its allies joined the AIIB, with its membership now standing at 83 including many western countries.


However, China wants to introduce Chinese characteristics in the new global order. Now the issue is to decode the Chinese characteristics. The world is mostly dominated by liberal democracies and thoughts. Liberal education was promoted as the only option after World War II. The world is full of liberal scholars, experts and economists but there are very few people who have studied the Chinese model. This lack of understanding is creating fear among countries about the rise of China and its influence at the global level. 


Presently, most of the studies or projects are being conducted by using the liberal economic model or views. It is like comparing apple and oranges. Therefore, there is a need to first decode and understand the Chinese characteristics, the major characteristics of Chinese model being harmony, eco-civilization and shared prosperity etc.
Liberal world also had these characteristics; therefore, there can be synergy between the two models. The world should look for synergy to save the world order one way or the other. Otherwise, the world is already moving on the same path as it was before the world wars.


The writer is a research scholar at SDPI with expertise in global diplomacy, climate change, water-food-energy nexus, and Track-II diplomacy. He teaches digital diplomacy, negotiation skills and conflict transformation at Foreign Services Academy.
E-mail: [email protected]
 


1                 Why Trade War with China will Hurt USA and Its Allies too, David Dollar, Zhi Wang, https://www.brookings.edu/blog/order-from-chaos/2018/04/04/why-a-trade-war-with-china-would-hurt-the-u-s-and-its-allies-too/ 
2          The Twilight of the Liberal World Order, Robert Kagan, https://www.brookings.edu/research/the-twilight-of-the-liberal-world-order/
 

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