How it develops from here will determine many other crucial factors on the world scene, from the benign economic growth projections most experts have been making this year, through to the most important geopolitical relationship in the world, that between the US and China.
If it escalates further, the Middle East will be left — geographically and metaphorically — hanging between these two giant economic powers. The region’s long-term commercial orientation could well be decided by the outcome of the conflict currently simmering over allegedly unfair practices in global trade.
It has been brewing for some time, since Donald Trump was elected US president on a protectionist ticket designed to put “America First” in everything. His electioneering rhetoric has been reinforced by post-inauguration actions like withdrawing from the Trans-Pacific Partnership and repeated threats against the North American Free Trade Agreement.
Trump says he is not anti-trade, merely anti-unfair trade. But you get the feeling he is actually railing against the economic advantages China enjoys, as a low-cost manufacturer and exporter, over the US. Put simply, China is better at making and selling things, especially basic products and processed commodities, than the Americans.
For Trump, this is another galling aspect to how he sees the world, and in particular the relationship with the rising economic and military power of China. Add to this increasing military tensions in the oceans off the Asia-Pacific coast, and competition between them in places like the Middle East and South America, which the Americans long regarded as their back-yard but in which the Chinese are now investing heavily, and it is the perfect storm of commercial rivalry.
Under the Trump administration, such concerns have taken on a strategic importance. The most recent moves, on the face of it, were about mundane issues like subsidizing and dumping steel and aluminum on the US, but the way the official recommendation from Commerce Secretary Wilbur Ross was framed tells just how important the Americans regard it.
The effects of a global commercial armageddon are impossible to predict — but would be genuinely worrying.
Rising imports of these metals “threaten to impair the national security,” Ross concluded. Although China was not specifically mentioned in the complaint, there was no doubt whom he had identified as the culprits. The Chinese in effect owned up, with an equally bellicose statement that talked about “China’s interests” and “our legitimate rights.”
Trump had ratcheted it up even further in a recent speech with a statement that “if we ever have a conflict we don’t want to be buying steel from a country we are fighting.” That is, literally, fighting talk.
Ross’s recommendation — that the US should impose a 24 percent import tax on steel and 7.7 percent on aluminum — has not yet been implemented, but if it were put in place the Chinese are likely to retaliate with taxes on American agricultural produce and animal feeds which form a big part of the import balance from the US.
It could get even further out of hand if European, Canadian and South American exporters also feel the US tariffs are directed against them too.
If it ends up as the US against the world, that could hit world trade patterns hard, and also bring down the economic growth rates that are so closely connected with trade and commerce. It could be a global commercial armageddon, and the effects of that are almost impossible to predict but are genuinely worrying.
One historian on Twitter yesterday reminded us that the Japanese attack on Pearl Harbor in 1941, which brought the Americans into World War II, was in supposed retaliation for an embargo on US oil exports to Japan.
It does not have to go that way, of course. If ever there was a time for the World Trade Organization to show off its negotiating expertise, which Director-General Roberto Azevedo was lauding at a summit in Dubai last week, it is now. If the American claims were tested in some form of international arbitration forum it might at least provide an opportunity to assess who is right and wrong.
If the WTO cannot talk some sense into them, the Middle East could get caught in the crossfire of a global trade war. The region is only on the edge of the current conflict, because it does not manufacture and export very much apart from crude oil and gas, which of course have their own issues.
But demand for those energy products depends largely on the needs of industrial and commercial producers, especially in China, which is the region’s biggest customer for crude and increasingly for gas too. If the Chinese and other Asian economies slow down as a result of a trade war, it is bad news for the region’s biggest export earner.
A trade war would have a broader regional relevance too. The defining trend of global economics since the great financial crisis of 2008 has been the switch away from the West, which was blamed for the carnage, toward the East, where the commitment to recovery policies helped get the world out of the mess.
In particular, Central Asia and the Middle East have enthusiastically bought in to China’s “One Belt, One Road” strategy that ties them more closely to Chinese trade.
A US-inspired trade war would surely confirm the impression that the Americans are increasingly untrustworthy in their economic and commercial relations with the Middle East, where many have accused them of disengaging on the political front. It would be in absolutely nobody’s interest.
- Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai