We’re seeing a strong return to the realpolitik world of the Cold War however now it is trade that is the weapon. China, Russia and the USA are clearly asserting their dominance through soft and hard power. Britain has too enacted those principles via Brexit and recently by deploying a craft to the South-China Sea and dismissing of Russian diplomats from their shores. Russia has replied in kind, and these tit for tat actions may not end there. However these actions are coupled with trade considerations.
It’s a much different world to a decade ago were one might argue that the world was brought together by the GFS begun by irresponsible banking practices. Admittedly, in the decade since, the strengthening off banking practices and in consequence making the government institutions bigger and more pronounced.
However currently the same institutions have been blamed for the slowness of recovery and feared for the ostensibly high excessive amount of power that they now hold. For instance when President Trump signed a number of tariffs recently the Federal Reserve called it a negative step and the markets reacted, however briefly, to the news.
In his defence Trump was merely responding to the negative trade balance between US and China. As countries scampered for dispensations, USA was clearly seen as holding the trump card. The last time America had a trade balance positive was nearly fifty years ago. You can’t blame Trump for moving to change that, it was of course one of his election promises. He wants to American industry and jobs to be protected. Quite frankly I am not surprised.
The counter-narrative of this protectionism is that a trade war will ensue. This is of course a fatalistic proposition one that does not take into account all the checks and balances in place in the world economy. That is the agreements already in place that relate to international trading, such as unilateral and others and the necessity of trade such as in the case of steel and aluminum products. For instance China buys a huge amount of iron ore and metals in general but produces fridges, microwaves, watching machines and the like and sell those to America as value added products. The cost of labor is cheaper in China so it makes sense for the world economy that China is where those metal goods are produced. It also makes sense that regardless of the tariffs USA purchases those goods, as the cost of manufacturing is higher there. A tariff may lower amount of metal good purchased by America and China may respond by buying iron ore from someone else, but the US may turn to other emerging economies for metal products thus stumping China in the process. Trump says: it takes two to play the game and if you won’t follow the rules, tough luck.
China had it coming, quite frankly, and I would not be surprised if this is only the start of US trade actions again it. For years the Chinese have broken every conceivable trading rule under the sun, yet the liberal media and central banks attack the US. They have made copyright infringements, pegged their currency to the dollar, and were involved in trade piracy. Other countries are dependent on cheap Chinese imports. However that is about to change. And it’s a good thing.
Soon many developed countries will source their products from other developing economies such as India, Bangladesh, Vietnam and Indonesia. Just to mention the Asian Chinese competitors. It is high time that the developed economies lowered their heavy reliance on China and spread their trading amongst other partners, including Africa. This will naturally lead to a lowering of the importance of the Chinese producers. It is the countries that heavily depend on China who have expressed the greatest concern to Trump’s measures. However the status quo can’t prevail and Trump’s way is the right way.