World economy: Going to war over trade. Really?


WORLD ECONOMY True, the US is the largest importer in the world and that puts it in a ‘strong’ position to negotiate. Still, it is not seen as fair negotiation when you unilaterally impose tariffs and then ask the other parties to come and negotiate a possible exemption. Furthermore, the EU is also a big importer (but not from the US) and is not acting in that way. On the contrary, it is steering its economy to higher efficiency and higher added value through promotion of innovation. China is of course currently still a smaller economy but a Hugh exporter both to the US and the EU. It has the most to lose from a trade war. But China is the biggest buyer of US debt and important sales of that debt by China would increase the yield on the US debt substantially, leading to much higher interest rates in the US, and that in turn would be very bad for the US economy.

Can the US unilaterally impose import tariffs under World Trade Organisation (WTO) rules?

The aim of the WTO is to eliminate 90% of tariffs on international trade between adhering countries. Still, there are mechanisms to impose tariffs under WTO rules when there is dumping (selling below cost), proof of foreign State subsidies or national security issues (but in a very limited way). The US administration is not using those WTO mechanisms in this case. It is simply unilaterally imposing tariffs which is not allowed by the WTO.

Still, unilateral retaliation by the affected countries would also be against WTO rules. They should complain to the WTO by following the mechanism in place to do so. But that of course could take years before a final result would come out, if ever. What is extra special in the unilateral imposing of the steel and aluminium tariffs by the Trump Administration is that it is not a temporary measure. That would be more logical though: to give time to the local US steel and aluminium producers to become more efficient and competitive to face imports again later.

Because of the apparent cracks in the western economic and trade ‘alliance’, Russia may see a chance to play the individual countries against each other to try to loosen the current trade sanctions, the Olympic exclusion because of drug use, or more.

Restraint and true negotiation should as always lead to better results for all countries involved and thus for the world, as opposed to confrontation. Let’s hope that reason will prevail and that all of this becomes a storm in a glass of water rather than a Trade War tsunami, but do not bet on it.