Donald Trump, president of the United States of America, has declared a trade war with China by raising tariffs on a number of Chinese goods. The Chinese have pushed back with tariffs of their own on some American products, and more recently have upped the ante by devaluing its currency to extraordinarily low levels. This tit for tat is a classic trade war, and its consequences will provide real life lessons for people who have only lived in a world virtually free of trade wars since about 1945.
Prior to World War II, there were no global trade pacts seeking to regulate buying and selling of goods between nations. Insofar as international trade was concerned, it was “every man for himself, and God for every man”.
Trade wars were commonplace, and while it existed, commerce was the weapon of war. Its tensions contributed to broader global disputes and made the world ripe for military conflict.
For this reason, following upon World War II, one of the determinations by the more powerful and developed countries of the world was to put in place an agreement to regulate trade among themselves; hence the signing of the General Agreement on Tariffs and Trade (GATT), signed October 30, 1947.
We are witnessing today two global economic giants having a trade war. At the moment, the war is somewhat subdued, but it is escalating to be sure.
Since last July, the United States placed some $250 billion worth of tariffs or what we commonly refer to as customs duties, on 5,745 Chinese goods ranging from solar panels and washing machines to aluminum and steel.
The Chinese government has countered with $110 million worth of tariffs on 128 U.S. products ranging from aluminums and airplanes to pork and steel piping. Tariffs on both sides have been raised as high as 50 percent on some items, but for the most part are between 10 percent and 25 percent.
What has been the consequence of these tariffs and the continuing threat of more?
U.S. and Chinese consumers pay more for these items. U.S. farmers, especially small and medium-sized ones, have lost critical revenue.
The U.S. government has spent more in farm subsidy, a great deal to so-called “Big Farmer”, than has been collected from tariffs.
The U.S. stock market has seen wild swings with significant losses, though recovering from the same for the most part. And, the U.S. economy and Chinese economies have softened, and with them global economic prospects. All of this was predictable and a real time lesson in how trade war benefits none and hurts all.
What is cute is that all of this is taking place with many international trade pacts in place and with a multilateral trading system in existence intended to maintain the global trade order.
However, the pacts between men and countries with honor mean something. But, as great Achilles said, “Fool, prate not to me about covenants. There can be no covenants between men and lions, wolves and lambs can never be of one mind, but hate each other out and out and through. Therefore, there can be no understanding between you and me, nor may there be any covenants between us, till one or other shall fall.”
“Fall” is precisely what this sustained trade war will cause; the fall of the U.S. economy, the Chinese economy, the world economy and, yes, the Bahamian economy.
Global trade requires the more or less free flow of goods and services, and that requires the cooperation of the men and women in power.
If the men and women in power recklessly ignore each other’s interest in pursuit of their own, economic or political, the price to be paid would be expensive for all.
We are getting there. But alas, this might be the best lesson for a world that takes so much for granted in the global order of the day; a world that has not had to live without that order. It is like that faithfully ticking heart or gallantly working liver, they hardly get any real attention while they function well, but when disaster strikes, we remember that we cannot live without them.
I do not pray for the consequences of a trade war any more than I do for the ravishing of a hurricane, but if either must come, I do pray that we do not waste the lessons they bring. So swing away China! Swing away USA! God help the rest of us.