Following an acrimonious G7 meeting, the imposition of US tariffs on steel and aluminium, and threats to impose tariffs on $200bn worth of Chinese goods, policymakers and corporate executives now see a serious threat to the global trading regime. To view trade as a ‘zero-sum’ game not only ignores the interests of the protectionist country’s consumers, it also invites retaliatory measures from trading partners, thereby transferring the true costs to other sectors, and weakens the resolve of protected industries to restructure. The resulting drop in global growth hurts everyone.
The FT’s Tim Harford gets back to basics, unpicking ‘the topsy-turvy logic of Donald Trump’s trade tirades.’ He argues that the best case for the US is to ‘lose less heavily than some.’ He concedes that there may be ‘a case for “infant industry” protection — using trade barriers to shield a new industry from competition while it finds its feet’, but adds that it is the ‘fading industrial titans, not the infants, that usually manage to lobby for protection.’ The threat of trade barriers might conceivably work as ‘a narrow negotiating ploy,’ but Harford recalls the words of British economist Joan Robinson some 80 years ago that ‘it would be just as sensible to drop rocks into our harbours because other nations have rocky coasts.’
US companies are finally waking up to what might now be the biggest risk to business. The FT reports a change of mood in the boardrooms. Executives are no longer dismissing Trump’s position as crude electioneering. ‘A trade war between the two greatest economic powers in the history of the United States is very dangerous’ says Peter Quinter, chair of the customs law committee of the American Bar Association.
Can business lobbies defend free trade? In this FT video, How to Stop a Trade War, Robert Armstrong sets out the extent of the challenge. Trump won’t acknowledge the basic principles of free trade. The EU is divided. China uses trade deals to assert political hegemony in Asia and suck out foreign investors’ intellectual property. But some countries remain steadfast. Japan has kept faith with the TPP deal even after the US pulled out. Others refuse to be cowed, retaliating 'proportionately' with tariffs of their own. And even if the Trump administration still won’t back down, he won’t be in power after 2024 at the latest. So ‘push back, push forward and be patient’ Armstrong advises.