Trump America pushes the world against free trade

08/01/2017

“The presumed recovery in 2017 and beyond could be derailed by several, possibly interacting developments: a bumpy transition in China, a sharp further fall in commodity prices, a tightening in global financial conditions, or a sharp hike in trade barriers,” says IMF chief economist Maurice Obstfeld.
On July 19th, the European Union launched its third legal challenge to China’s unfair export restrictions on 11 key metals and minerals. Chinese export restrictions on raw materials have been a major trade obstacle in previous years. China imposes a set of export restrictions—export quotas, export duties, and additional requirements that limit access to rare earths for companies outside China. Chinese export restrictions create serious disadvantages for foreign industries by artificially increasing China’s export prices and driving up world prices. Such restrictions also artificially lower China’s domestic prices for raw materials, as they increase domestic supplies. This gives China’s local industries a competitive advantage and puts pressure on foreign producers to move their operations and technologies to China. Foreign companies are incentivized to move production to China for cheaper manufacturing costs. China has argued that its export restrictions on rare earths are part of its conservation policy.
On Monday China followed through a warning to "take further measures" against WTO members which continue to impose tariffs on its goods 15 years after Beijing's accession to the organization. The Chinese Commerce Ministry said that China has launched a dispute resolution case at the WTO, demanding that all WTO members, particularly the US and EU, stop using the "surrogate country approach" to impose higher tariffs against Chinese goods, which they claim to be exported at artificially low prices. The Commerce Minister called the "market economy" concept a hangover from the Cold War era, and a domestic legal conception which should not apply to the WTO.
Sunday December 11 marked the 15th anniversary of China's WTO accession, and China expects governments which have not already done so, to lift anti-dumping tariffs against its exports and treat Beijing like a fully-fledged member of the organization. The WTO and China agreed an accession protocol when Beijing joined the organization in 2001. Article 15 of this protocol dictates the terms which importing WTO members can use to compare their prices with those of Chinese producers, to determine if that producer is competing fairly with the domestic producers in the importing country. Some WTO members including the US and EU want to reserve the right to restrict Chinese imports with higher tariffs, in order to protect their manufacturers against "dumping," the process by which a manufacturer exports a product to another country at a price below that charged in its home market, or at a price lower than the cost of production.
Japan followed the United States and the European Union on Thursday in announcing a policy of not treating China as a market economy under World Trade Organization standards.
It’s not all.
In America, after a long and bitter campaign for the US presidency, Donald Trump has triumphed over Hillary Clinton and the world’s financial markets have been rocked. Tapping into economic discontent Trump has argued for protectionism and asserted that decades of free-trade policies were responsible for the collapse of the American manufacturing industry. He has been feeding on the perception among many Americans that globalization has brought more pain than gain, for example, by bringing cheap consumer goods into the country, costing domestic jobs and depressing wages. Outsourcing of jobs to cheaper markets has also been a concern. Against that backdrop, Trump’s stance on trade is perhaps the clearest of his economic policies.
The billionaire Republican wants to renegotiate, or possibly even scrap, the North American Free Trade Agreement. Nafta lowers trade barriers between the US, Canada and Mexico and was negotiated by George HW Bush and enacted in the 1990s by Bill Clinton. The incoming president wants Nafta to offer a better deal for Americans and has rejected claims by his opponents that the deal has helped the US economy by opening up export markets.
Other global trade deals are also now very much in doubt, notably the Trans Pacific Partnership (TPP), between 12 countries around the Pacific rim, excluding China, and the agreement being negotiated between the US and Europe, known as the Transatlantic Trade and Investment Partnership (TTIP). A Trump presidency could fuel anti-globalization momentum and spark a wave of protectionist policies around the globe. In terms of trade deals, both TTIP and the TPP now look dead in the water.
The U.S. and President-elect Donald Trump have more to lose taking a protectionist path than the emerging economies that would be affected by a renewed anti-globalization policy, the chairman of Societe Generale told CNBC.
For Trump’s supporters he represents a chance to shake up a system that many Americans feel has increased inequality and squeezed living standards. For less complacent investors, there are worries Trump’s anti-globalization mantra will spread protectionism around the world, put up trade barriers and curb global economic growth. Furthermore, markets do not like unknowns and with Trump going to the White House they are dealing with a complete newcomer to politics. His administration is widely expected to mark a departure from the policies of his own Republican party as well as the outgoing Democrats.
Trump seems to think he can start a trade war and leaders in other countries will unilaterally disarm. The reality is that if the U.S. retreats from its leadership position on global trade, other countries will follow suit and give in to protectionist impulses too. We have seen this before in history, and the results have been tragic. There would be job losses in the U.S. and elsewhere, not job gains, and U.S. consumers would be forced to pay much more for the products they buy. Protectionism hits the poorest households the hardest because they are least able to handle the price increases that follow for food, clothing, and other essential goods.
For two centuries, there has been no real dispute among economists about the advantages of free trade, which are based on the theory of comparative advantage. When trade is free, capital in a country naturally moves toward industries in which that country has an advantage relative to other countries and other industries. When capital is allowed to move in this way, global production rises, firms become more efficient, and trade among nations allows everyone to be better off.  The theory of comparative advantage is observable in the gains seen in economic well-being all over the world from more liberalized trade.
Of course, free trade does not benefit every industry in every country. Industries that do not enjoy a comparative advantage in the global marketplace contract, and employment in those industries declines. But the solution to that problem is not to impose higher costs on all consumers, which is what would happen with a return to protectionism. The federal government should provide extended income-support benefits, job retraining, educational opportunities, and relocation assistance to workers dislocated by international trade. Not all job losses are due to global trade, either. The reduction in manufacturing jobs in the U.S. is tied mainly to technological advances, not trade. No matter how high tariffs are raised, jobs lost to automation will not be resurrected. Trump is raising false hopes among millions of people who somehow think the clock on technology can be turned back to the 1960s, and the world would become enemy of free trade once again./.
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All comments [ 11 ]


yobro yobro 8/1/17 11:36

The U.S. and President-elect Donald Trump have more to lose taking a protectionist path than the emerging economies that would be affected by a renewed anti-globalization policy.

Pack Cassiopian 8/1/17 11:37

There are widespread concerns that Trump's promises to rip up trade agreements, including the Trans-Pacific Partnership, will affect the economic potential of emerging markets.

John Smith 8/1/17 11:39

With Trump, unstable future is waiting American.

Love Peace 8/1/17 11:57

There’s no doubt that many Trump supporters are hurting, and want desperately to gain a foothold in an economy they feel has passed them by.

MaskOf Zero 8/1/17 12:17

That would all change with Donald Trump, he would be the first fully protectionist president since just before the Great Depression.

LawrenceSamuels 8/1/17 12:18

Unfortunately, what Trump is offering is an anti-growth plan. Attempts to wall off U.S. industries from international competition would backfire.

Deck Hero14 8/1/17 12:19

The tragic and ironic result would be even more populist resentment toward Washington.

Gentle Moon 8/1/17 12:22

His administration is widely expected to mark a departure from the policies of his own Republican party as well as the outgoing Democrats.

Love Peace 8/1/17 12:23

Furthermore, markets do not like unknowns and with Trump going to the White House they are dealing with a complete newcomer to politics.

Only Solidar 8/1/17 12:25

Trump has also made his anger with China over trade well known, arguing that since China joined the World Trade Organisation, Americans have witnessed the closure of more than 50,000 factories and the loss of tens of millions of jobs.

Jane smartnic 8/1/17 12:26

The most high-profile Trump plan on immigration is for a wall along the Mexican border. He also said he would deport 11 million undocumented migrants, something opponents say is physically impossible. He wants immigrants to be selected on the basis of “their likelihood of success in the US and their ability to be financially self-sufficient”.

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