The world is in trouble. On the one hand, there is conflict between Russia and Ukraine and also between Hamas and Israel – and potentially its neighbours, too. On the other hand, there are heightened tensions between the world’s trading partners. While this is nothing new – Donald Trump, when president, poked the bear – the problem could be about to get worse.
Indeed, the financial newspaper Nikkei Asia thinks that if Donald Trump wins the US presidential election in November and implements his proposed 60% tariff on all imports from China and a 10% universal baseline tariff on goods from elsewhere, he will stretch World Trade Organisation rules beyond breaking point.
Importantly, the publication thinks that it would “eviscerate” the principle of equality “so cherished” by the WTO (that is, Most Favoured Nation status for all members). At the core of the matter is that global institutions “derive as much legitimacy from their foundational assumptions, shared philosophies and stakeholder buy-in as they do from codified regulation”.
If Trump’s tariffs are implemented, Nikkei Asia believes that major US trading partners would retaliate, leading to the “most significant global trade war since the 1930s”.
On the face of it, any US-based trade war is precisely that, a war on those that trade with the US
Countries unable to stomach a trade war with the US will start forging small trade deals with each other, leaving a “patchwork of coerced agreements with heavy mercantilist overtones”, with those unwilling to meet Trump’s terms facing “mounting tariff walls”.
But for the moment, Joe Biden occupies the White House. During a recent speech in Pennsylvania, he announced plans to triple tariffs of 7.5% on Chinese steel and aluminium. He also promised to block a Japanese company’s acquisition of US Steel.
Of course, Biden may have just been posturing because of the forthcoming presidential election. Regardless, the move won’t do much for free trade.
On the face of it, any US-based trade war is precisely that, a war on those that trade with the US. However, the matter could spill over into other markets – including Europe and that could have an effect here.
Anyone with an eye on history will remember how President Trump started a trade war in 2018 with China and applied stiff tariffs on goods it sent to the US. Back in July and August 2018, US and Chinese tariffs on each other’s goods were evenly pegged at $34bn and $16bn, respectively, according to the BBC. By September, the US had applied $200bn of tariffs on Chinese goods, while the Chinese had reciprocated with $60bn in tariffs on US imports. That carried on until Joe Biden assumed the presidency. Notably, the Carnegie Endowment For International Peace reckoned, in January 2021, that Trump’s trade policies actually hurt the US more than it helped and led to the loss of 245,000 jobs.
Similarly, in 2018, the US introduced tariffs on €6.4bn of European steel and aluminium exports. In response, the EU introduced rebalancing tariffs on US exports to the EU worth €2.8bn.
According to a February 2024 report, Trump is thinking about directly punishing the EU over trade with a broad minimum 10% tariff that would also be aimed at China. Part of his thinking is to ‘persuade’ the US to become more aggressive towards China. However, he also is unhappy with the trade deficit with Europe.
Ultimately, trade wars pose a threat to most countries and create financial instability that prevents investors from conducting business abroad. They affect growth and the wealth of individual nations. And if followed to the logical conclusion, trade wars damage the wealth of individuals and their ability to make purchases.
Putting the futility of this into context is the “Pale Blue Dot” photo. Taken by NASA’s Voyager 1 probe in 1990, the grainy image is one of several of the solar system captured some 3.7bn miles from Earth before Voyager headed for interstellar space. Showing striations of sunlight, in the right-hand beam is a single blue pixel – of Earth. Everything that ever has been or will be occupies that one pixel.
Earth, let alone wars of any kind, just doesn’t count. Wars are pointless; let’s hope that reason wins the day.