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Trump's trade war against China: A challenge to the South

Trump's moves in initiating a trade war are, D Ravi Kanth argues, a defining moment for China and other Southern nations, including India, as to whether they can safeguard their special and differential flexibilities which the US and the West are attempting to erase from the multilateral trade rulebook.


THE World Trade Organisation (WTO) is facing a 'Nero moment'. This occurs when one member state runs amok with unilateral threats of 'trade war' against another member and launches paralysing actions. But the head of the organisation - who is supposed to be the custodian of the global trading system - plays down those threatening actions, like what the Roman emperor Nero is said to have done when he preferred to sing and play the lyre in the face of the fire that engulfed Rome in 64 AD.

'I am truly sorry to say the only thing that will stop big economic powers such as the US, China, the European Union, and Japan from descending into economic warfare is the World Trade Organisation,' wrote Sean O'Grady in The Independent on 2 April.

'The world economy rests, then, on barmy Donald Trump, some autocratic Chinese communists and peevish Eurocrats - but crucially on the flabby, nervous, unsteady hands of the deeply unimpressive [WTO Director-General Roberto] Azevedo,' O'Grady said.

'War,' said the German military theorist Carl von Clausewitz almost two centuries ago, 'is a continuation of politics by other means.' But it is not clear what politics US President Donald Trump, whom the WTO is terrified to face, intends to pursue in his threatened trade war against China.

A full-blown trade conflict between Washington and Beijing is yet to take concrete shape. At the moment, Trump's trade war is mostly in the realm of threats against China. In response, China has offered robust defence with appropriate countermeasures. 

The US, which has now become an open unilateral bully unlike under previous administrations that exerted influence behind the scenes, launched the trade war manoeuvres last year as part of Trump's 'America First' strategy.

Earlier this year, Washington began with so-called safeguard actions against imports of solar cells and large residential washing machines, imposing tariffs of 30% and between 25-50% respectively. The primary targets of these actions were seen as China and South Korea.

Subsequently, Trump enacted tariffs of 25% on steel and 10% on aluminium on 8 March, invoking 'national security' grounds. Although the European Union signalled it would counter the US measures, it quietly struck a deal with Washington to secure exemptions from the steel duties. Canada, Mexico, South Korea, Brazil and Argentina followed suit.

China is the only country which stood its ground against the unilateral US measures. It challenged Trump's action by targeting 128 US products such as fresh fruit, pork and recycled aluminium on 23 March.

Then, Trump ratcheted up the pressure on China through his trade war games by signing 'a memorandum targeting the economic aggression of China' on 22 March. He threatened to impose new taxes on $60 billion of imports from China in retaliation for alleged Chinese theft of intellectual property. The Chinese products that would be subjected to additional duties following 'the forced transfer of US technology and intellectual property' include items from a variety of sectors such as aeronautics, information and communication technology, and robotics and machinery.

In real-time response, Beijing announced it would impose retaliatory measures to the tune of $50 billion on various American products. China targeted politically sensitive goods such as soy and automotive and aerospace products in a way that could severely undermine the electoral prospects of Trump's Republican Party candidates in the US Midwest region and elsewhere in this November's congressional elections.

China's bold actions unsettled Trump. On 6 April, he ordered the US Trade Representative to consider imposing tariffs on an additional $100 billion of imports of Chinese goods. An agitated Trump told his Agriculture Secretary Sonny Perdue to prepare a plan of action to subsidise American soy and other farmers if China implements its retaliatory measures on US agricultural products.

Clearly, the trade war dynamic unleashed by Trump under the specious plea of addressing US trade deficits has disturbed the markets. BNP Paribas Asset Management, according to a Financial Times report on 7 April, warned that 'if the Trump administration decided to pursue an aggressive trade war against China', then it would raise questions over whether Beijing might sell down its vast $1.2 trillion holding in US treasuries. However, BNP said 'the probability of a full-blown US-China trade war was low.'

Unfazed by the volatile response from the markets, Trump seems determined to intensify US actions against China on several fronts to extract concessions from Beijing. The US is pursuing a strategy to isolate China by building a coalition of willing countries such as the European Union, Japan, Canada and Australia. Washington could play up the threat of China in frontier technologies such as artificial intelligence and robotics in order to prepare the ground for a global embargo on investments by Chinese companies in Europe and the US.

On the WTO front, Trump tweeted on 5 April: 'China, which is a great economic power, is considered a developing nation within the World Trade Organisation. They therefore get tremendous perks and advantages, especially over the US. Does anybody think this is fair. We were badly represented. The WTO is unfair to US.'

The US and its allies are determined to push through 'differentiation' at the WTO to deny the likes of China, India, Brazil and South Africa the special dispensations accorded to developing countries in the WTO rules. The Trumpian trade games are thus increasingly morphing into a North-South trade divide.

This is therefore a defining moment for China and other Southern nations, as to whether they can safeguard their flexibilities in global trade that are sought to be erased from the multilateral trade rulebook by an unpredictable hegemon along with its close Northern allies.

China has offered a blueprint to other developing countries for climbing up the economic ladder and lifting millions out of poverty. It recorded these achievements by adopting an economic model that had been pursued by the US and other dominant Northern powers themselves when they, for example, implemented intellectual property rights on a selective basis during their own nascent stage of economic development. The Cambridge economist Ha-Joon Chang is right when he argues that the US and other Northern countries are now 'kicking away the ladder' with which they ascended to the top.                   

D Ravi Kanth writes for the South-North Development Monitor (SUNS) published by the Third World Network. This is a revised and edited version of an article that was first published in LiveMint (www.livemint.com).

*Third World Resurgence No. 328, December 2017, pp 23-24


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