Comment: trade policy at a crossroads


Still, the trading partners of the United States can choose: mutual tariff increases and the destruction of free trade or the removal of customs duties. The decision must soon fall, said Dennis Snower.

The trading partners of the USA are at a turning point: The trade war of the USA with China has now reached a dangerous level, since the US has referred to the Ministry of Commerce of China as a “currency manipulator”. This happened as a response to the weakening of the Chinese currency, which had fallen to the lowest level since 2008.

Beijing allowed in a likely strategic response to the Renminbi a fall in price to its trade advantages and the consequences of US President Donald trump’s next penalty-inch round confront: namely, from September, in addition to impose a ten percent tariff on Chinese Goods to the value of $ 300 billion. This would mean that almost all US imports from China would be subject to duties. Currently, customs duties of 25 percent on Chinese Goods to the value of $ 250 billion.

The US should continue on this destructive path, it meant a loss for the global economy and international trade. This policy of the spontaneous mutual retaliation, the duties resistant increases and currencies will be devalued, since it is only the beginning.

Global Impact

In the case of a further escalation in Beijing, the US government could throw bonds onto the market. As a result, China would force the prices in the basement, the US financial system, destabilize, and its Position as the largest foreign debtor of the United States as a weapon to use. Although China has been sold in March, US bonds with a value of 20.5 billion US dollars – as much as for the past two years – remains the country America’s biggest foreign debtor, because it still holds U.S. securities with a value of 1.12 trillion dollars. In a world of mutual interaction will have global consequences.

Since 2018, as Trump started to reduce the trade deficit with China, have occurred in both countries in a “How-you-me-so-I-you”process of mutual Trade restrictions. Each other to the point you have raised in further escalating trade war. The conflict itself is a dangerous misinterpretation of the “zero-sum game”, in which the profit of a country is always the loss of another.

Dennis Snower, founder and President of “Global Solutions Initiative”, was President of the Kiel Institute for global economy

This path does not need to call the trading partners of the United States. A further way is open. You could forgo the game to want the other to always be one step ahead, and the customs of the United States increases, instead, with a removal of tariffs and other trade barriers answer. That would draw the trade of the United States to other countries, supported by trade agreements that are matched with the rules of the world trade organization WTO. Global value chains, would adapt to it.

Under the leadership of the G20, the International monetary Fund (IMF) and the WTO should focus on cooperation. With the participation of rule-based trading would not be maximizing only material success, but also the social promoted the welfare of the citizens. Such a System would not destroy trade, but to revive, with the goal that every country benefits from it.

Cooperation required

This kind of act is not based on altruism or a concern beyond the legitimate interests of a country. Finally, trade is not a pure end in itself but rather a means to human promote the welfare within flourishing societies.

Necessary cooperation with multinational institutions such as the G20, which represent 80 percent of global economic output, three-quarters of global trade unwinding, and two-thirds of the world’s population, represent but, in any case. In addition, the two largest are the people of the world, the USA and China economies, represented, unlike in regional partnerships or the G7 group.

This trade war has a global impact and the United States, caught in the System of mutual retaliation, will lead us on a dangerous path. America’s trading partners can change this course. But if we follow this destructive path any longer, it will be a reversal soon impossible.

Now is the Moment to rethink. If the USA can not recognize the world it can be.

Dennis J. Snower is President and founder of the “Global Solutions Initiative”. The Economist, who was until February 2019, President of the Kiel Institute for the world economy (IfW).