Conscious that a robust foreign trade policy has its benefits as an electoral strategy to expand his power base, President Donald Trump has hardly softened his posture on protectionist measures. With tariffs of 25- and 10 per cent on steel and aluminium in place, prices of imports containing these materials were pushed up.
While this satisfied those constituencies which voted for “Make America Great Again”, foreign manufacturers were left discouraged. Trading partners and traditional US allies were upset, and responded by threatening to bring the issue to the attention of the World Trade Organisation (WTO). But Trump then went on harden his trade tariff line with China.
But the move against the world’s largest economy-in-the-making backfired. With new tariffs and counter measures in place on both sides, a full-blown trade war was rumbling.
Both state actors are not inclined to refer the issue to WTO for a binding dispute settlement, with China claiming a deal should be premised on equality and dignity. There is now the possibility that the stalled trade relations will be re-started.
Following talks with his Chinese counterpart Li Jinping at the G20 Summit, Trump appeared willing to negotiate “for the time being”, and allowing the resumption of sales of hi-tech US telecom components to China’s Huawei.
Having said that, the tit-for-tat skirmish over trade imbalances caused by China’s trade practices has led to consumer price increases, the re-routing of exports to alternative markets and even the possibility of manufacturing bases being relocated.
Countries affected by disruptive trade flows have no option than shielding their own industries against Chinese imports through safeguard or anti-dumping measures. Restoring the lost competitiveness of US industries through fairer trade deals is only a part of the story.
The forces of economic globalisation are insufficiently harnessed. The pragmatic approach of the US and the EU on China’s adherence with the multilateral trade rules has suited a more assertive and business-driven China well.
It enjoys overcapacity in construction, heavy engineering and civil nuclear capabilities, while its “One Belt, One Road” development plan is designed to build economic growth and trade flows by connecting infrastructure from Southeast Asia to Europe through the wider Middle East.
Acting in his highly personalised style, Trump’s practice of shaking things up seems to have finally woken up key policymaking institutions of the EU, though.
Internal unity on trade is still fragile, but the world’s largest trading bloc has begun to vocally acknowledge state intervention in the Chinese economy, a lack of reciprocity in access to Chinese markets for foreign investors, and the uneven playing field for foreign companies in China’s goods and services markets.
The US and the EU have the potential and leverage to get China to change ways on non-transparent subsidies and other disruptive state measures.
Johann Weick is a Brussels based writer.