The new war of the worlds

Mahmudur Rahman | Published: June 06, 2018 21:43:49 | Updated: June 07, 2018 21:45:12

US President Donald Trump signs a presidential proclamation placing tariffs on steel and aluminum imports while surrounded by workers from the steel and aluminum industries at the White House in Washington on March 08, 2018. — Photo: Reuters

At the turn of the century sagacious views moved from crystal ball gazing to first scan the distance and then their bagels. The conclusions were that future wars would be fought over liquid resources. Neighbouring countries would never agree on what 'equitable' water sharing of commonly flowing water is; those far apart would never agree on what 'balanced and fair' trade could ever be.

Businesses and trade evolved from needs or perceived ones. Those clever or shrewd enough to come up with cost-effective production essentially took the cake leaving the crumbs behind.

Industrial revolution or not, technology transfer was zealously guarded and thus protectionism was born.

The barriers created against free trade had its advantages till scales of production tilted towards larger inventory and capacity than actual shipments.

Led by the west the globalisation agenda became sexy and protectionism became outdated. That is for as long as it suited them.

The focus on accumulating wealth and resources have now reached a peak whereby the United States, with an economy that continues to favour the affluent, wants to disturb the post-World War order.

Change comes with its own dose of excitement. After nearly triggering a nuclear war, a 'will we-won't we trade war with China', repudiation of years of negotiations on world trade and international, if regional, trade pacts and the Climate Change Agreement, Mr. Donald Trump has now sent shivers down his allies' backs in imposing tariff barriers on steel and aluminium.

As we've all come to know, Mr. Trump has changed the definition of statecraft. His self-created process involves consolidating policies and decisions by a single individual rather than they be defined by informed think-tanks with informed considerations of the proven ones, notwithstanding the varying scenarios as well as trends and contrasting views.

His decisions are based on the concept of 'deals', another word for negotiating positions. In his case he pushes rather than persuades.

China has often been guilty of belligerence in trade matters. This time they took a reasoned stand, perhaps because they didn't quite know how Mr. Trump would react.

The outcome has been a status quo in the tariff imposition for all the hawkish intent of John Bolton, the US national security adviser.

It was won by the soft reminder that saving jobs in one sector doesn't work if it hits another. In return, the promise of importing more from the US to balance the trade deficit is a soft sop at most.

No country can really import products and services that it can produce or provide cheaper. China is a past master at that. No less convincing was their argument that closure of Chinese companies that provide cheaper parts and services to feed giants such as Apple, hits the US job market hard and infringes its international sales.

The European Union (EU), UK and Canada are set to react similarly to the new tariffs on steel and aluminium that Mr. Trump has announced. At Group of Seven (G7) Ministerial level the words used have been strong.

Canada, having had the experience of a mating of the North Atlantic Free Trade Agreement (NAFTA), was in a better position to respond and said it would hit back dollar to dollar.

Prime Minister Justin Trudeau was one of the first leaders to meet Mr. Trump and will know him well enough, as he does India's Narendra Modi.

Probing deeper, under the surface of the front that the US President presents, his actions don't seem as dense as was first made out to be.

His insistence of investments in the US as well as clawing back those made abroad has begun to kick-in through new factories and corporate tax cuts.

Canada will produce Bombardier plane parts in the US, car manufacturers from Japan have agreed to put in plants. The 'deal' with China almost likely is based on more exports of farm products, amongst others, even as it protects ZTE jobs.

Trump employed the campaign strategy of accusing the Chinese of 'raping' US steel manufacturers.

And when Trump was visiting, he was almost friendly in telling the Chinese it wasn't their fault, 'the mistake was ours', a suggestion that self-rape is possible. With the EU and UK, the strategy of divide and conquer is nothing short of brilliant.

Britain's major concern is life after the EU and its trading will have to be a match and mix of volume vs value with few guesses as to where the value exports are headed.

The alarm bells were ringing shortly after British Chancellor of the Exchequer Philip Hammond did a tour of Washington and India to woo newer, innovative trade deals in the wake of Brexit.

He came back with a better idea of the sights of Washington; the back-streets of India got with little else to show for it. British steel makers are now biting their nails in anticipation of the consequences should their product face additional tariffs.

Mr. Trump is also providing a clear example of where the money for his ambitious infrastructure fund and tax-cut shortages are going to be made up; it's from tar. Europe created the Union to prevent further wars over natural resources.

Without the lucrative US market, threats to jobs increase. That makes retaliatory tariffs less of a powerful response tool.

The difference is that the US can produce and supply its own markets, though the expected value growth will not be forthcoming.

A stubborn unemployment situation that, bar Germany and the UK refuses to go away puts further pressure on the EU stability to create jobs.

Emmanuel Macron didn't mince words in saying America First is a stark stake in the sand for protectionism. But that's how the US President operates.

India's Prime Minister Narendra Modi has made more visits to the US than other countries and is now simmering over an almost no-reaction to his famous 'Make in India' call that was targeted at America.

Latest events would put that idea on the back burner. And there are little doubts that inviting Bangladesh Prime Minister to the G7 outreach isn't just about courtesy and the soft issues; the commonwealth card is being called into play and what better than one of the world's most resiliently growing economies.

For the developing world, especially India, it is the next front that will be further perplexing.

Outsourcing by US companies have kept middle-class economies chugging along. If he focuses there Mr. Trump will have sealed all of his election pledges save for health care and the wall.

The water wars will be regionalised; the trade wars could be catastrophic.

Share if you like