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May 23, 2019

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US irrational practice will boomerang

Old-fashioned protectionism seems to be regaining momentum in the United States, which recently escalated a trade war with China. Yet the egoistic practice commonly used by the US will be much of a boomerang, hurting itself and casting dark clouds over the global economy.

Washington imposed additional tariffs on US$200 billion of Chinese goods from 10 percent to 25 percent on May 10, aggravating the year-long trade friction between the world’s top two economies despite 11 rounds of bilateral trade talks. China announced that it will raise the rate of additional tariffs imposed on some of the imported US products from June 1.

The typical protectionism which the US pursues shows a zero-sum mindset that goes against the reality of economic globalization. Global trade — largely a result of comparative advantage of different countries — has promoted common economic growth and improved the living standards of people at different corners of the globe. It is normal for a country to have a trade deficit with some countries and a surplus with others, as a nation cannot have comparative advantage in all sectors.

Big stick of tariffs

With globalization, there has been increasing specialization of industries and technology. Interdependence and complementarity are hallmarks of international economic relations. The supply chain of a high-tech product often involves many countries. Wielding the big stick of tariffs in an attempt to realize unreasonable demands only harms global supply chains which many US companies also rely on and squeezes the vitality that its economy needs for growth.

The Trump administration has also imposed tariffs or threatened to do so on products such as steel with its other trading partners including the European Union. It is common sense that tariffs will be paid by the imposing country’s importers and eventually transfer to consumers. It will do nothing in solving the goods trade deficit between China and the United States. Myopic protectionism brings neither prosperity nor strength in the long run. On the contrary, it may put the US economy in the doldrums. With countermeasures from China, many US farmers and companies face the actual risk of losing the huge Chinese market in which they have had profitable business for years.

Over the last month, the US-China trade war has boosted the risk of a US recession, according to a Reuters report last Friday. A strong majority of economists polled by Reuters put the chances of that happening in the next two years at 40 percent.




 

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