US intransigence prolongs easily avoidable trade war

Global trade relations are currently moving in opposite directions.

While US President Donald Trump’s administration is trying to impose new restrictions on its trade with the rest of the world — especially its main partners such as the EU, China and Japan — there are other influential powers with great leverage in trade ties seeking a further liberalisation.

The US has recently levied tariffs on imports from China, the EU, Canada and many others, which would have an effect on up to $500 billion (Dh1.83 trillion) of its trade with China alone.

Thus, Trump has left other partners facing a difficult choice, either full liberalisation of trade or levying of equal tariffs by all parties.

During a meeting with the European Commission president last week, Trump said he would work with Jean-Claude Juncker to work to reduce trade barriers to zero on industrial goods, with the exception of cars. Juncker on his part said, “The US and EU will refrain from imposing any more tariffs during their trade negotiations.”

This means reaching no final agreement, in light of the French President Emmanuel Macron’s immediate rejection of the Trump-Juncker agreement. This despite the trade exchange between the EU and the US exceeding $1 trillion dollars annually.

On the other hand, the European Union and Japan signed a free-trade agreement in mid-July and which will come into force in 2019. It will be the world’s largest free trade agreement and cover one-third of the global economy and 600 million people. It in turn deals a blow to the protectionist policy adopted by the US president.

However, it is still unknown which side will have scale in its favour. The US is struggling alone against powers such as China, the EU and Japan, which practically constitutes a trade bloc against US tariffs that Trump believes is a legitimate right similar to the tariffs imposed on his country’s exports by the other three.

It goes without saying that none of the major powers intends to enter a trade war with the largest economic power, whose market represents a vital outlet for their exports. At the same time, the conditions set by Trump cannot be accepted as they pose a trade and economic challenge to the others and are not welcome even within the US itself, prompting the US administration to allocate $12 billion in the form of subsidies to American farmers.

The global trade situation as a whole is in a state of uncertainty, as there are no indications of any understandings on the disputes. This would cause serious damage to global growth as a whole.

If the US has scale in its favour, it would become the undisputed trading power and once again regain control over trade relations that have been shaken by the emergence of China and the European Union as powers that can influence trends.

Meanwhile, if matters head the other way and a European-Chinese-Japanese alliance is formed, the US economy would be severely affected and countermeasures would be taken as a result. Both cases would aggravate a trade war that has already entered into force.

There remains slim prospect of compromises to meet halfway and save the world from the dire consequences. It is in fact being sought by the EU, China and Japan, but face many complications on the US side.

— Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.