Confrontational trade policies come with many risks

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Confrontational trade policies come with many risks

The world watched with anticipation as US President Donald Trump and his Chinese counterpart Xi Jinping met at the G20 summit on Sunday. In what has been an incredibly tense few weeks, investors were bracing for the worst as Trump showed a dogged willingness to force concessions out of China. But, over dinner, the two sides agreed to a temporary truce, with the US delaying for 90 days the imposition of 25 percent tariffs on Chinese imports; the latest episode in a worrying saga of growing protectionism posing a threat to global peace and stability.

In September, the US levied 10 percent duties on $200 billion of goods from China, prompting Beijing to put tariffs on $60 billion of US goods. The G20, founded to promote international financial stability, now finds itself divided as rising nationalist sentiments raise questions about its ability to deal with trade tensions.

The growing prospect of a major international trade war has shone a light on the G20, which accounts for two-thirds of the world’s population and 85 percent of the global economy. Given recent friction between the US and its allies, Russia, and China, how the G20 is able to maintain its commitment to anti-protectionism is being watched by all. 

Since becoming president, Trump has turned Washington’s trade policy on its head, imposing tariffs on key allies and hurtling the US into a commercial confrontation with China. Whilst China, India, Russia, Brazil and South Africa have said that the World Trade Organization should be strengthened, Trump used the G20 meeting to push for its reform following his August threat to pull the US out of the organization. Given that the US economic model has been an example that other global economies have sought to follow, especially its commitment to free trade and globalization, the American retreat from such principles is putting a great strain on critical relationships. 

Simultaneous acute geopolitical tensions and growing protectionism have the potential to seriously exacerbate global insecurity. Rather than use the summit to resolve tensions, Trump canceled a meeting with Vladimir Putin, who was keen to end crippling anti-Russian sanctions and talk with his US counterpart about his intention to opt out of the 1987 Intermediate-Range Nuclear Forces Treaty. 

By pursuing a policy of supporting tariff hikes, the US will be less likely to draw the international concessions it wants from Moscow, which instead used the summit to curry favor with other members. Citing US intransigence on trade with China, Putin issued a thinly veiled attack on the policy as “dishonest competition.”

The Sino-American relationship will always be complicated — not only are the two countries in competition, but their economies are greatly intertwined, with China holding considerable American debt and America importing vast amounts of Chinese goods and products

In a peculiar turn, Russia has been able to improve its standing by supporting other global powers on trade and Iran, despite its involvement in several international controversies. The US, conversely, through its lack of commitment to core global principles and ideals, has harmed its own claim to global leadership and inadvertently empowered those who seek to make the world more unstable. 

How the world’s two largest economies trade has massive consequences for the entire global economic system. The Sino-American relationship will always be complicated — not only are the two countries in competition, but their economies are greatly intertwined, with China holding considerable American debt and America importing vast amounts of Chinese goods and products. However, the US president has chosen to pursue economic policies to pander to his voter base, whilst the economic fundamentals of the relationship show clearly that, despite military and political friction over certain issues, neither country can afford the decline of the other. 

The threats of US decision-makers about China are incredibly subjective. Their issues with regard to unfair advantages in manufacturing, for example, are unfounded, as Chinese manufacturing will gradually decline and the US dominates the international services industry, which is from where future economic growth will come, according to professor Bobo Lo, who has written extensively on this topic. 

High-profile trade disputes suit Trump and the interests of the military industrial complex he has promised to protect. Retaining a defense budget in excess of $600 billion is dependent upon the perception of threats, and such budgets are difficult to rationalize when concerning minor international campaigns to bring Islamic militants to heel. Instead, the maintenance of a worthy adversary in the eyes of the public and policy-makers is what is needed to justify extravagant military spending. 

Such confrontational policies do come with great risk, however, as the two economies are reliant upon each other to succeed and the bonds between them are in fact only growing. Eight times more Chinese students are enrolling at Ivy League universities than a decade ago, for example. Trump would do well to bear this in mind, especially since US global leadership is based on America’s commitment to certain principles, which it cannot be seen to undermine. 

As the G20 came to an end with another non-binding agreement, the organization’s ability to secure free trade is in jeopardy.  The final communique failed to mention the word “protectionism” owing to resistance from the US — yet another example of how global norms cannot be implemented and are under threat without generous support from Washington.

  • Zaid M. Belbagi is a political commentator, and an adviser to private clients between London and the Gulf Cooperation Council (GCC). Twitter: @Moulay_Zaid
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