How bad could it get? As China and the US swap tariffs and counter-tariffs, are we witnessing the opening salvos of a full-blown trade war between two of the world’s biggest economies? If so, would it lead to a fracturing of the international trade system and a return to the tit-for-tat reprisals and “beggar thy neighbour” policies of the 1930s?

Europe would, along with the rest of the world, almost inevitably get dragged into the mix (as we have seen with the recent furore over steel tariffs, though the EU was eventually granted an exemption in that case). Even if Europe can avoid the direct impact of tariffs, a falling tide lowers all boats, meaning everybody loses if the global economy starts to stutter. On the other hand, Trump argues that it’s not possible to lose a trade war if the current terms of trade are already totally unfair.

What do our readers think? We had a comment sent in from Yiannos, who believes that all this talk of trade wars may very well be exaggerated, because surely President Trump understands how damaging it would really be. In other words: Yiannos thinks that Trump may be bluffing. This is all part of the “art of the deal”.

To get a response to Yiannos, we spoke to Pascal Lamy, former Director-General of the World Trade Organization (2005-2013). How would he respond? Does he think Trump is bluffing?

Well, only the future will tell whether Trump is bluffing or not. Although, we know it’s part of how he proceeds. The problem being that if you start putting trade restrictions on China, China will do the same – which is, by the way, what they are doing. For the moment, we see a state where both sides announced that they have weaponry that they could use. Whether they will do it or not, I don’t know.

The optimistic interpretation is that they are both building negotiating positions, starting with Trump who says he is fed up with China cheating with the rules of world trade and China saying ‘no, no, no, we play by the rules and if you’re not happy, please go to the WTO.’ That’s the optimistic interpretation.

The less optimistic interpretation is that, as we all know, Trump doesn’t really understand the rules of world trade today and he may be inclined to take damaging measures, which will both damage the US economy and the Chinese economy, hence, the negative reaction of markets, which is what we have to expect.

To get another perspective, we also put Yiannos’ comment to Clyde Prestowitz, founder and president of the Economic Strategy Institute, a think-tank in Washington D.C. What would he say?

Trump is not bluffing. He truly believes the United States is being harmed by its trade relationship with China and is determined to do something about it. He is not counting the pluses and minuses of a trade conflict in the same way as the media and most economics and trade experts.

We also had a comment on Twitter from Jan, who would like to know what the biggest risks to the global economy are right now. How would Pascal Lamy respond?

Well, the global economy is [doing] really well – much better than any time during the last ten years. There is coincidental convergence of most engines creating the world economy in the right direction, in every region of the world. So the big danger is not in the economy, it’s in politics.

The first danger among the dangers is what we see happening between the US and China on the trade front. There is a risk because of the US stance on trade. There is a risk to damage what has served the world economy extremely well for the last decade, which is the multilateral, rules-based trading system. But the risk that this is damaged and the intention of the US to move back to the past, which is a sort of bilateralisation instead of multilateralisation, of trade conversations and trade agreements, which – of course – would not be as efficient as a multilateral one. So the danger is mostly moving back from multilateralism to bilateralism.

How would Clyde Prestowitz respond to the same question?

I think the biggest risks are China’s ‘Everything Made in China by 2025’ policy, China’s extremely high savings rate which is equivalent to the savings rates usually seen in countries at war, China’s huge national debt, America’s growing internal and external debt, and Germany’s enormous savings rate and consequent chronic and enormous trade surplus.

Finally, we asked Clyde Prestowitz whether he thought the world was truly on the verge of a global trade war and, if so, what would be the consequence. What would he say?

It is important to understand that we have been in a global trade war for the past forty or so years. Japan’s ‘catch up’ strategy which encompassed a highly mercantilist approach to trade and globalisation was a trade war against the US and the EU. Korea’s mercantilist globalisation policies have constituted a similar trade war. Then, China adopted not only an authoritarian kind of state capitalism, but also a very sophisticated form of mercantilist trade and investment policy. This has been going on for a long time now and we have become so accustomed to it that we take the situation as normal. But trade and investment between China and the EU or the US are something quite different than trade and investment between the US and the EU.

How bad would a US-China trade war be? Will the current tit-for-tat tariff hikes inevitably lead to a full-blown trade war, or is there still time to change course? Let us know your thoughts and comments in the form below and we’ll put them to policymakers and experts for their reactions!

IMAGE CREDITS: (c) / BigStock – MAGNIFIER, PORTRAIT CREDITS: CC / WikiMedia – World Trade Organization


24 comments Post a commentcomment

What do YOU think?

  1. Ivan

    Not as bad as an EU trade war with the UK will be for Brussels.

    • Ian Betts

      Ireland is worst affected, 15% of Ireland’s exports go to the UK. About 7% of Germany’s exports go to the UK, other member states less still. About 40% of UK exports go to the EU. Tell me which member state will worse off ?

  2. Steven

    @Ivan grow up! Brexit is like a real divorce. Anyone who’s been there knows there are no winners only losers.

    • Steven

      @Ivan of course Liam Fox has to say that it’s his job! I’ll talk to you in 10 years time! Good luck!

    • Barry

      @Ivan good luck with MAGA Trump and mighty China giving you great deals now that Britain doesn’t have the backing of 300 million other people.

    • John

      @Ivan and you believe this? Would you like to buy a Unicorn?

    • Steven

      @Ivan the UK is a country desperately looking for trade deals to be able to survive and the whole world knows this. This is a very weak bargaining position to start out with and those other countries will take advantage of that. So yes you will get your trade deals they will simply be sub Zero quality. For your information the EU isn’t trying to punish the UK, that is simply Brexit propaganda brainwashing you. Terms and conditions as as well as schedule for the brexit negotiations were set out from the very start and have never changed.
      Leave campaigners need to get off their high horse and stop thinking that the UK is a special nation that deserves more than any other country. Only then will people realise that the European Union will stick by there four cardinal pillars.

  3. La F

    It will just be tit for tat. I don’t think the US consumer will be too concerned. It’s China who depends on the West for all its cheap Xmas trinkets et al. If you can’t have turkey well you’ve always got Chicken is what pops used to say. There’s always another fiddle waiting to be the next China.

    • Sven

      Chinese steel is used for, among others, US build cars and kitchen appliances.

      Chinese tariffs attack specifically products produced in Trump voting states, like soy and pork.

      China has a very big breath. The US doesn’t.

  4. Sven

    It’s funny how trump says Chinese tariffs are an “unjust retaliation”

    It’s the bully trying to bully the biggest kid in school.

  5. Julia

    When US corporations moved their manufacturing to China because it was cheaper and more profitable to use slave labour the US gov didn’t act. They made China rich and powerful, technology has progressed to robotic production and the US are now wondering what went wrong.

    • Christine

      The US government is run by corporations

    • Julia

      The mess the US is in is due to greedy opportunistic corporations

  6. Allan

    As long as the world follows the religious God known as Capitalism and it’s dogma & doctrine of Profit at any Cost! There will be no winners.

    • Ivan

      Socialism is death to any Nation that tries it.

    • Allan

      @Ivan good luck with brexit.😪 The function and purpose of social democracy is to look after and care for the people. Actually it is one of the more successful forms of government there is both spiritually and economically.
      I live under a democratic monarchy. It is reasonably successful.
      The major problems within governments is greed and corruption. There is of distraction going on in England right now as Ms May is desperately trying to cover up her and her Administration’s failure to deal with brexit. But that is the result with little to no plans. Just talk but lacking in substance..

  7. EU Reform- Proactive

    Does Brussels’ believe China’s 2025 and 2050 national agenda to economically capture the whole world (ready to fight a trade war ‘at any cost’ or as ‘go-it alone’ global creditor) is beneficial to the EU or that the EU can remain on the sidelines as passive observer or lecture the US & others- hoping to remain unaffected or not an economic target of Chinese might, smartness & ambitions?

    The EU can only silently “envy” China’s overall achievements over the last decades which portrays a united and strong country, great patriotism & nationalism- despite or because being ruled & managed by a so called (despised) communist one party system with a questionable human rights record.

    Time is running out for the rest! Not acting or not having a plan is no solution or alternative.

    It would be encouraging if the EU could visibly become more realistic by limiting discussions over trivialities like black spots on oranges, food wastage’s within the EU, liberally dishing out “punishments” to its members, but allowing the poisoning of its soil & people with BASF “Round up”- while China quietly and smiling overwhelms everyone- unopposed- with their economic might.

    http://www.scmp.com/news/china/policies-politics/article/2115970/xi-lays-out-path-confident-new-era-china

    Please EU lets see & hear your master plan- or is the EU destined to become a Chinese province eventually?

    • Allan

      .

      Capitalism has taken 1 billion people worldwide out of poverty while socialism only creates poverty wherever it is tried so you had better hope capitalism does not fail.

      If Nazism is rightly rejected for its 60 million dead why does socialism get a pass for its 100 million dead ?

    • Sheila

      Poverty everywhere and increasing, a socialist future is coming

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