President Trump's recent announcement of steep tariffs on steel and aluminium imports seems to have shocked America's allies, even though this was among his election promises. It received sharp reactions from the European Union (EU), Australia and Canada, compared to a much more diplomatic and nuanced response from China.
President Trump repeatedly claimed during his election campaign that America is unfairly treated. He said this even during his recent visit to Sweden, where he took a swipe at the EU for being "particularly tough on the United States". Mr Trump said, "They make it almost impossible for the United States to do business with them. And yet they send their cars and everything else…"
The fact is, President Trump hasn't started this latest round of trade war.
It has been raging for quite some time, especially since the 2008-2009 global financial crisis (GFC). The World Trade Organisation (WTO) seems helpless in preventing the rise of protectionism, particularly when developed countries have effectively put WTO's Doha Development Round (DDR) into a comma.
The WTO's World Trade Statistical Review 2017 shows that growth in the volume of world merchandise trade slowed to 1.3 per cent in 2016, down from 2.6 per cent in 2015. It was the lowest growth rate of global trade recorded since the GFC. It also notes that the volume of world merchandise trade grew about 1.5 times faster than world gross domestic product (GDP) since the Second World War, and more than twice as fast in the 1990s. But, in the aftermath of the GFC, the ratio of trade growth to GDP growth dropped to around 1:1, and for the first time since 2001 that this ratio dropped below 1 to 0.6 in 2016. One obvious reason for such a slowdown has been prolonged slow global growth.
However, one of the contributory factors to both slow global output and trade growth is increasing protectionism. For instance, more than 1400 restrictive trade measures have been implemented by G20 economies alone since 2008. According to the WTO, between mid-May 2017 and mid-October 2017, G20 economies applied 16 new trade-restrictive measures per month, including new or increased tariffs, export restrictions and local content measures. The WTO report further adds that G20 economies may have opted in favour of implementing less traditional and transparent measures to curtail trade, making it more difficult in gaining access to the relevant information.
All this happens despite the G20 leaders at their first Summit in Washington DC in 2008 declared:
"We underscore the critical importance of rejecting protectionism…, we will refrain from raising new barriers to investment or to trade…, imposing new export restrictions, or implementing World Trade Organisation (WTO) inconsistent measures ... Further, we shall strive to reach agreement … that leads to a successful conclusion to the WTO's Doha Development Agenda with an ambitious and balanced outcome. .. We also agree that our countries have the largest stake in the global trading system and therefore each must make the positive contributions necessary to achieve such an outcome".
Unfortunately, the words were never matched by action.
An earlier WTO report with greater geographic coverage found that the stockpile of restrictions rose to 2,557 as of October 2015, up 17 per cent from the previous period. That is, countries are increasingly resorting to discretionary and non-transparent non-tariff barriers (NTBs) instead of traditional, transparent and well-regulated trade barriers, such as tariffs. These include subsidies, domestic content requirements, health and safety requirements, state-owned enterprises and public procurement. They are subject to a high degree of discretion, and affect a lot of trade, particularly of developing countries. These discriminatory measures vastly outnumber liberalising ones.
So, what is different in President Trump's announcement? It is in the method, not in the substance. At least President Trump has shown his cards and announced transparent tariff measures than non-transparent NTBs as others - 'friends' and 'foes' of the United States in the G20.
In the political economy of international trade, countries maintain tariffs in order to use them as bargaining chips when they engage in trade negotiations which can go on for a long time. Thus, the rush for bilateral or plurilateral trade agreements, especially after the developed countries put the DDR to an intensive care unit, paradoxically might prevent rather than promote tariff liberalisation.
If the developed world really wants to avoid an all-out trade war, they must respect multilateralism and revive the DDR as they promised at the first G20 summit.
Anis Chowdhury, Adjunct Professor, Western Sydney University and the University of New South Wales (Australia), held senior United Nations positions in New York and Bangkok during 2008-2016. [email protected]
