GENEVA (Arête News) — Trade conflicts sparked by U.S. President Donald Trump’s tariffs against China, the European Union and others threaten to undermine the work of international organizations trying to lift the world’s poorest out of poverty.
Leaders of international organizations that promote global trade and investment said their efforts are at risk of stalling or failing because of the trade war between the United States and China and trade tensions between the United States and many of its most important trading partners.
Each of the targets of U.S. tariffs — imposed on all imported solar panels and washing machines and on steel and aluminum from the European Union, Canada and Mexico — retaliated with tariffs against American goods. Even worse are the repercussions on global markets of a U.S.-China trade war.
The Trump administration was set to impose tariffs this month on US$34 billion of Chinese imports. China prepared to retaliate with a similar amount against U.S. products. Each side planned to up the ante to US$50 billion in goods subject to tariffs. Trump specified US$200 billion more beyond that, and threatened to raise the stakes yet higher to another US$200 billion — to which China said it would respond in kind.
Beyond the repercussions in Washington and Beijing, international organizations said the tit-for-tat tariffs will undercut a broad array of efforts that they and others are striving to make to fulfill the United Nations’ 17 Sustainable Development Goals for ending poverty, protecting the planet and promoting peace by 2030.
“The Trump administration’s introduction of sweeping import tariffs on steel and aluminum raises the real possibility of a global trade war,” said Mukhisa Kituyi, secretary-general of the U.N. Conference on Trade and Development, or UNCTAD.
“The effects would be felt everywhere, but especially in the world’s poorest countries, and everything from the current global recovery to the Sustainable Development Goals could now be in jeopardy,” he said. Kituyi, a former Kenyan trade minister and parliamentarian, said conflicts between the powerful usually harm the least powerful. He cited an old African proverb: When elephants fight, it is the grass that suffers.
“The same is true for full-blown trade wars: when major economies clash, developing countries will be among the hardest hit,” Kituyi said in an op-ed article published by Geneva-based UNCTAD. “We know from history that nobody ‘wins’ in a trade war. Tariff hikes by major trading countries represent a reversal of efforts since the end of World War II to eliminate trade barriers and facilitate global commerce.”
Concerns about trade tensions surfaced earlier this year at UNCTAD, which supports developing countries. Officials cautioned their assistance could start winding down if the multilateral trading system stalled. “The trade policy environment is not conducive to delivering the Sustainable Development Goals,” said Anabel González, a former trade Costa Rican trade minister and senior World Bank official.
Trump’s argued his protectionist reliance on import tariffs — such as a 25 percent tax on steel and 10 percent tax on aluminum — is required to fight unfair terms for U.S. companies and workers competing with cheaper imports and labor costs abroad. Disruptions in global trading, however, would stall or end the recovery from the 2008 financial crisis, punishing developing countries and the world’s poorest.
A systemic trade threat
Rising trade tensions “risk a major economic impact, undermining the strongest sustained period of trade growth since the financial crisis,” said Roberto Azevêdo, director-general of the World Trade Organization.
“They also pose a real systemic threat, risking far greater impacts in the longer term,”Azevêdo told a Berlin news conference in June. “We will continue working to resolve these tensions and to avoid further, damaging escalation which draws in new sectors, potentially harming more workers.”
Azevêdo, previously a Brazilian diplomat, told a forum for Portuguese and Brazilian law schools at Lisbon in April that “an escalation of reciprocal trade restrictive measures would stop this recovery in its tracks — with consequences for jobs and GDP growth that would harm us all.”
He said that along with “important economic consequences, the potential systemic consequences could be even more serious.” The International Monetary Fund also warned of an increasing risk that a trade war could undercut the world economy’s current climate of healthy business investment and trade.
Powered by China, Europe, Japan and the United States, global growth has been on track to reach 3.9 percent in 2018 and 2019, the IMF said, up from 3.8 percent in 2017. But as U.S.-China trade tensions escalate, consumers and businesses will get hit with higher prices.
Manufacturers in countries that produce goods stand to lose jobs, sales and profits. Reduced trade hits governments through loss of revenue, as was seen in the 1930s when trade restrictions by industrialized nations led to widespread poverty and joblessness.
U.S.-China dossier: 22-12
The dispute between the world’s two biggest economies has slowly grown with the United States challenging China on everything from cars to chickens, according to a WTO map of their trade complaints.
The map of red and blue arrows shows the United States filed nearly twice as many trade complaints against China as it received in the past decade and a half — reflecting what a former U.S. trade representative called a winning streak.
A review of WTO figures shows the United States filed 22 complaints against China, versus 12 the other ways around — including China’s latest complaint in April challenging Trump’s tariff hike on imported steel and aluminum.
Chinese President Xi Jinping’s government claimed the added U.S. duties on steel and aluminum violate global trade rules. Other countries, too, say they will contest the U.S. tariffs. Trump invoked a rarely used provision of the U.S. Trade Expansion Act of 1962 allowing trade restrictions for national security.
Trump said keeping prices down will ensure survival of the U.S. steel and aluminum industries vital for national defense. The claims brought outrage and threats of reprisals from other nations around the world.
In 2002, then-President George W. Bush invoked similar duties on imported steel that wound up costing around 200,000 U.S. jobs. Studies later showed the costs of his protectionist measures outweighed the short-term benefits.
In general, tariffs favoring locally produced goods raise revenues for governments. But they also drive up consumer prices, disrupting local or increasingly global supply chains.
China, for its part, has denied that its exports of surplus steel and aluminum are sold at improperly low prices, which pose a threat to jobs in the United States and Europe.
French President Emmanuel Macron and German Chancellor Angela Merkel pressed Trump to drop his proposed 25 percent tariff on steel and aluminum. The European Union said it was unhappy with Trump’s extra 30-day extension before imposing the tariffs.
“The U.S. decision prolongs market uncertainty, which is already affecting business decisions,” the European Commission said in a statement. “The E.U. should be fully and permanently exempted from these measures, as they cannot be justified on the grounds of national security.”
The United States has long expressed concern about Beijing’s economic policy of rewarding foreigners with market access in exchange for providing key technologies built into Chinese products. However, with Trump — who threatened to raise tariffs on China’s technology imports — there is another complication.
He regards the WTO trade dispute resolution panels as unfair and ineffective against China’s technology grabs and state-owned companies. But under his predecessor, President Barack Obama, the United States repeatedly used those dispute panels to challenge China and other countries.
“It’s important to be tough with China on trade, even as we find ways to work with them on challenges ranging from North Korea to Iran,” Michael Froman, a former U.S. trade representative from 2013 to 2017, told the Washington International Trade Association last year.
Froman claimed the Obama administration had “won every case decided so far” among the 15 WTO disputes it filed against China in eight years. When it comes to WTO cases, both sides often claim victory.
Disagreeing about trade is part and parcel of international relations.
But a #tradewar’s never the answer. It’s like elephants 🐘 fighting: the grass gets crushed. When heavyweights battle, it’s the more vulnerable nations that end up taking the hit.
— UNCTAD (@UNCTAD) June 29, 2018
No real winners
Several organizations and agreements have been created since World War II to promote international trade. When accompanied by open borders and modern trading exchanges, international trade tends to boost development, job creation and markets around the world.
The WTO, with 164 member-nations, succeeded the 1948 General Agreement on Tariffs and Trade as the primary vehicle to facilitate free trade through rules and dispute resolution. Anti-globalists, however, view it as a tool of capitalist exploitation.
Trade wars, tariffs and other recent shocks to the international trading system have tested the effectiveness of the WTO, established in 1995 as the only global international organization dealing with the rules of trade between nations. They also have posed a test to the 1994 North American Free Trade Agreement.
Trump directed a U.S. pullout from the Trans-Pacific Partnership, Obama’s big trade deal with 11 Pacific Rim nations, later revived as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Six Asia-Pacific countries —Australia, Canada, Japan, Mexico, New Zealand and Singapore — have signed it, which means it will go into effect on December 30. Five other countries — Brunei, Chile, Malaysia, Peru and Vietnam — have signed but not yet ratified it. The trade pact is now referred to as the TPP-11.
Experts warn of a mounting backlash against the United States.
“Trump’s tariffs would automatically trigger penalties against the U.S. in the WTO and might even lead to the WTO’s collapse, which would lead to higher tariffs against U.S. exports,” Winter Nie of International Institute for Management Development, wrote in an article published by IMD in Lausanne, Switzerland.
“While it might take a while for that to happen, the turmoil would be catastrophic for American business and employment,” said Nie, an American and Chinese management professor. “China, on the other hand, would emerge relatively unscathed.”
The rating agency S&P Global has warned that U.S. companies would be the biggest losers, particularly in the energy, financial and industrial sectors, and that Trump’s tariffs have raised the probability of default in the next year for 65 percent of U.S. publicly-traded companies and 58 per cent of Chinese stocks.
“Considering the complexity of international supply chains, many market participants are on edge that new tariffs might have damaging unintended consequences,” S&P said.
Whatever the outcome, a trade war would certainly not benefit the world’s developing countries. They depend on open markets and low tariffs, which are kept in check by a system of trade rules. By contrast, protectionist governments, from Iran to Zimbabwe, have created some of the least competitive economies.
When the United Nations said in 2010 it reached one of its Millennium Development Goals five years early — halving extreme poverty from 1990 to 2015 — that achievement was a credit to international trade. The U.N.’s next-phase Sustainable Development Goals aim to end poverty and hunger everywhere by 2030.
Whether that is achievable remains to be seen. But for international organizations, it is clear that a trade war and other trade tensions around the globe will make it that much more difficult — maybe impossible — to lift up the world’s 800 million people who are living in extreme poverty on less than US$1.90 a day.
— SDG2030 (@SDG2030) July 1, 2018