The Financial Express

Trump's trade war: A great paradigm shift

| Updated: July 11, 2019 15:54:05

Trump's trade war: A great paradigm shift

Trump's trade war is increasingly taking the shape of a part of a larger scheme of things - who will dominate the global economy. He is pushing his agenda to maintain the US as the sole global economic hegemon and wants complete economic surrender by China. The trade negotiation document that the US provided to China was a document containing terms of surrender and not to negotiate a trade deal. From the US perspective the US must win and China must lose. Trump's trade war against China is intended as a means to pulverising the Chinese economy. Also, the US is practically waging a war on the Chinese economic system which in three decades lifted 600 million Chinese out of poverty. US argument is based on the grounds that the Chinese state subsidies help many industries to gain competitive edge over the US. But the US also subsidises its industries such as agriculture, IT, armament, transport and many others to the tune of billions of dollars. The US also from the late 19th century to the early 20th century was involved in technology transfer from the UK to the US and provided subsidies to transport, education, communication and many other basic infrastructure. The main objective of Trump's trade war with China is to allow it to grow within the parameters set by the US to become, like Japan, economically prosperous but a US client state.

The trade war against China that started a year ago is increasingly shaping up as a cold war as the US is readying itself to back up the economic confrontation with full-scale military preparations. During his visit to Japan last month Trump drafted Japan as a partner for military confrontation with China by further rearming the country. Trump assured Japan to expedite sale of a large amount of war equipment to it worth billions of dollars which include sale of 105 F-35 stealth fighter aircrafts and air-to-air cruise missiles. This is in line with Trump's policy to boost US armament exports to its client states like Japan, South Korea and Australia in the region. He, indeed, made armament sales to US client states and allies a major part of his drive to increase US exports.

Japanese Prime Minister Shinzo Abe is widely seen as one of the world leaders who can interact with Trump quite comfortably and his strong personal ties with Trump are considered as a huge advantage to Tokyo. These personal ties are displayed to demonstrate a strong Japan-US alliance and project an aggressive confrontational posturing against China. A senior Japanese diplomat told reporters that Trump's visit emphasised that the purpose was to send out signals that the Japan-US alliance was stronger than ever. The statement clearly indicated Japan's willingness to be a partner of the US in any military confrontation with China.

Meanwhile, early this month in Singapore, US Defence Secretary Patrick Shanahan declared US readiness to use force against China to secure its interest. The Indo-Pacific Report released by the US Department of Defence described China as a "revisionist power'' which sought to  undermine the rules-based international order, the usual catch phrase to refer to the US-dominated global order and the rules that govern that order. This order is not only based on military dominance but also economic dominance where the US completely dominates trade in information technology (IT), finance, armament, oil and agriculture. Over and above this, the US dollar performs the role of international medium of exchange and international reserve currency.

Trump's national security adviser, John Bolton is more forthcoming in identifying the core issue which is "a question of power''. He alleges that China's theft of intellectual property makes "a major impact on China's economic capacity and therefore on its military capacity''.

The fact is US multinationals operate globally and their technologies are up for sale; they are not the US state property, but private property. They also develop their technologies all over the world and trade in those. Apparently these corporations willingly share their technologies with their Chinese joint venture counterparts as there is no legislation in China that compels these corporations to do so. They do so obviously to enter the lucrative Chinese market and make huge profits out of these joint ventures. Their primary allegiance is to their shareholders, not to the US government. Their main business objective is to maximise profit to enable them to pay six figure salary and bonuses to their executives and handsome dividend to their shareholders. On a more theoretical basis, there are no trade secrets, they are legalised monopolies out to extract monopoly rents from wherever they can do that, be it in China or elsewhere.

But Trump has now put bans on sales of US products to Huawei invoking national  security clause. He previously banned the supply of Huawei equipment to US federal agencies. In effect, Washington is attempting to push Huawei out of the global telecommunication market. The semiconductor industry in the US has a lot to lose from this tech war initiated by the USA further adding to creating the heightened cold war climate. According to the Financial Times "the move against Huawei has brought Donald Trump into line with both the trade and security hawks in his administration''. In retaliation China has made a thinly veiled threat to cut off the supply of rare earth minerals which are used in high-tech products. The US imports its 80 per cent of rare earth minerals from China.

The US attempt to shut out China from the global high-tech market will have serious consequences for the global economy and worsen the global security environment. In effect, such US actions seem to have led China to redouble its resolve to upgrade and further speed up its technological innovation and economic development.

However, Trump's tough warning on tariff escalation directed at China also has a warning to Abe. The current trade negotiation between the US and Japan is primarily geared to opening up the Japanese market to increased US agricultural products and a threat of 25 per cent tariff on Japanese automobiles is still hanging. The US is also now considering imposing tariffs on aluminium imports from Australia which was exempted from 10 per cent tariff imposed in last May. Trump has threatened Mexico with 25 per cent tariff if the country does not stem the flow of immigrants into the US. By doing so he is passing on the costs of the US border control to Mexico. This threat was made when United States-Mexico-Canada Agreement (USMCA) deal had already been struck with Mexico and Canada. The US list of trade and economic sanctions is continually expanding incorporating countries like North Korea, Russia, Venezuela, Cuba and Iran. This list excludes countries that are under threat of tariffs.

With continually expanding trade and economic sanctions and tariff escalations the US has thrown the global trading system into total chaos. The situation has further been exacerbated by Trump's willingness to use  tariffs to pursue his objectives going far beyond trade as exemplified in his threat of tariff  against Mexico.

Trump's tariffs, economic and trade sanctions are not only driving China and Russia into an alliance but also forcing the affected countries in Asia and Europe to  seek and act on  alternative avenues to delink from the US economy or reduce their trade, finance, technology dependence of the US. In such a scenario, the US will find itself isolated in a newly emerging consensus on multilateralism. Trump does not seem to understand that his trade and economic sanctions and tariffs will boomerang on the US itself as self-imposed economic and trade sanctions. He unwittingly caused changes to the dynamics of global economy where the focus is now gradually shifting from the US to a new region due to the changing global economic and technological landscape. Trump will go down in history as the catalyst of hastening the process of that changing landscape.

Muhammad Mahmood is an independent economic and political analyst.





Share if you like