New trade agreement is a beacon of hope on a dark trade horizon 

New trade agreement is a beacon of hope on a dark trade horizon 

As the finance ministers and central bank governors of the G20 nations gather in Buenos Aires, Argentina, international trade will be first and foremost on their minds. Earlier this month President Donald Trump made good on his election promise to impose trade sanctions by announcing 25 percent tariffs on imported steel and 10 percent on aluminum.
The measure was targeted at China, which floods the international markets with cheap steel and aluminium due to its overcapacity. 
The sanctions targeted China but they hit Canada, which accounts for 50 percent of steel and aluminum imports as well as Mexico, Brazil, Korea and some European importers.
The rhetoric around the measures was outright nasty: The Trump administration vociferously kick-started the debate and the global response followed swiftly. Unless European steel producers can also get exemptions, the EU might be aiming at a tit-for-tat and impose tariffs on goods such as Kentucky bourbon, Harley-Davidson motorbikes and Levi’s jeans. This would predominantly target regions supporting Trump.
The real question is where all of this leaves global trade, and with it global prosperity. 
Trump may exclude Canada and Mexico from the tariffs, depending on how the North American Free Trade Agreement (NAFTA) renegotiations evolve. He may in the end even be lenient with his European allies. However, his rhetoric and his actions will have done damage to the fragile system of global trade, which can only work when a majority of nations adhere to its principles. A country can evoke tariffs for national security reasons under the WTO agreements. Trump’s announcement might therefore have honored the letter of the global multilateral trading framework, but certainly not its spirit.
The US president is embarking on a dangerous course: Global trade has been responsible for lifting billions of people out of poverty since World War II. Prosperity has always been linked to trade. A bout of protectionism was part of why the world slipped into a deep depression at the beginning of the century. While the president may have a point about China’s role in selling its steel and aluminum too cheaply in global markets, he is penalizing the wrong countries and sending the wrong signal.
Nowhere does this come to bear more prominently than when looking at the Trans-Pacific Partnership (TPP): The Obama administration had invested years in rallying 12 Pacific Rim nations, excluding China, to form a trade alliance. 

Global exchange has been responsible for lifting billions of people out of poverty since World War II — we need to support it.

Cornelia Meyer

This trade agreement stood in direct contrast to the Asia Pacific Trade Agreement (APTA), which was led by China and notably excluded the US. The TPP and APTA were very much where the Chinese quest for dominance in Asia was fought. Many of the TPP signatories such as the US and Japan grew increasingly wary of China’s evergrowing clout and sphere of influence. President Trump’s decision to rip up the TPP on the day he was sworn in therefore stands in stark contrast with his quest to work against Chinese dominance in global trade.
With the help of other Pacific Rim nations, Canada’s Prime Minister Justin Trudeau picked up where Obama left off. In January he announced at the World Economic Forum in Davos that the 11 remaining nations intended to form the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) without the US — if that was necessary. They did so, signing on the dotted line in Chile on March 8 of this year.
This is important for two reasons: One, it is encouraging to see trade agreements thrive in the face of obvious skepticism from the US president; and two, Japan and others took actions due to their increasing wariness of the ever-growing global economic reach of China — especially in the light of the country’s Belt and Road Initiative.
While the CPTPP is a shining light on the horizon, we should not underestimate the dangers emanating from the trade skeptics in the current US administration, such as Wilbur Ross and Peter Navarro. A global system of free trade can ultimately only function when the majority of nations signs up to it. The WTO is an important organization in terms of maintaining that global trading regime. Undermining it may come back to hurt us all.
All of this matters to the Middle East as well. The MENA region needs to create approximately 100 million jobs over the next decade to employ its young population. This goal can only be achieved if the region creates jobs, jobs and jobs, which means that it needs to invest in a multitude of new industries. Those new enterprises will depend on a global trading system and WTO rules to thrive.

 
  • Cornelia Meyer is a business consultant, macroeconomist and energy expert. Twitter: @MeyerResources
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