Issue :   
July 2018 Edition of Power Politics is updated.         June 2018 Edition of Power Politics is updated.
Issue:May' 2018

FREE TRADE

Trump queering the pitch

K R Sudhaman

Europe-U.S. rift develops after a tense G7 summit


Trump’s comments that Trudeau is “meek and mild, very dishonest and weak” provided fodder for several Canadian newspapers to launch a frontal attack on the Republican White House. One columnist said the strongest bilateral relationship between US and Canada is now in a “ditch” and there is no clear way to get out.


It is really strange that the United States, which had championed the cause of free trade, is on a reverse gear. President Donald Trump is trying to put the clock back, by hitting the protectionism button with his America First policy.

Trump’s five-year kid-like antics against Canada at the Quebec summit of G7 nations have certainly triggered a trade war, which hurts everybody. The American leader cannot be unaware of the truism.

Yet his attack against Washington’s close ally and friend, Canadian Prime Minister Justin Trudeau does not speak well of his maturity as a politician. His string of tweets attacking Trudeau, some of them personal, has not gone well with G-7 leaders; even American citizens are said to be not happy.

Renowned Hollywood star Robert De Niro, who was in Toronto, Canada, for a restaurant opening around the time of the Quebec summit, has apologized to a crowd to the “idiotic behaviour of my President". The city mayor John Tory immediately thanked the actor.

Trump’s comments that Trudeau is “meek and mild, very dishonest and weak” provided fodder for several Canadian newspapers to launch a frontal attack on the Republican White House. One columnist said the strongest bilateral relationship between US and Canada is now in a “ditch” and there is no clear way to get out.

Trump’s action after the June 8-9 summit (at the tourist friendly La Malbaie town, formerly known as Murray Bay, in the Charlevoix-Est Regional County on the north shore of the Saint Lawrence River) has drawn a public rebuke from every other member of the G7 - Canada, France, Germany, Italy, Japan and the UK. The “burning tire fire” that became the G7 is not surprising given rising trade tensions and President Trump's distaste for these global conclaves, according to a commentator.


Ajay Sahai
Trudeau responded with tough words of his own, reiterating that Canada would move forward with a slew of tariffs in response to Trump's tariff hikes. “Canadians, we're polite, we're reasonable, but we also will not be pushed around,” he thundered.

While G-7 summit clearly established that support for free trade is at serious risk, it has been worsened by yet another development, that is, trade war between China and United states. Even India has not been spared by the United States.

These developments had forced Canada, the European Union, India and China among other nations to knock at the doors of WTO to discipline the United States and to resort to punitive action if unbridled protectionism is not ended. Trump seems to be in no mood to relent. The situation is only getting worse with each passing day. The countdown appears to have begun for a full blown global trade war.

Against this backdrop Trump’s handshake with Kim Jong-un of North Korea and his claims of some “historic” progress towards denuclearization by Pyongyang have made a limited impact.

Why Trump’s America is resorting to protectionism? Well, it needs more jobs at home since unemployment is growing. Jobless growth is not only true of US but also elsewhere in the World. Revival of growth after 2008 financial crisis, has taken less number of years than what it took during the great depression of 1930s. This is because of the concerted efforts of the G-20 countries, which put their act together swiftly, as early as 2010.

The collective efforts by the central banks and political leaders of G20 ensured that by 2016, the world economy was on a revival mode. But what it failed to address was the jobless growth. The G20 meeting to be held in Argentina in September will chart out a road map to tackle joblessness.

The time-tested policy during recession is to step up public expenditure, particularly in creating permanent assets and infrastructure. This has a multiplier effect in creating jobs, consumer demand and growth, which in turn helps to come out of the vicious circle of low growth.

So rising tariffs at this juncture is not going to promote the cause of any country, leave alone the United States. This is going to dampen consumer demand further resulting in more unemployment and more problems for the world economy.

In the 1930s the United States had cut wages to spur growth and employment but what it actually ended up with, was pushing down consumer demand, thereby worsening the industrial scenario and aggravating unemployment. Trump’s actions now may snowball into a similar situation.

Realising the gravity of the situation, Canada’s Ontario premier ReDoug Ford said, “We will stand shoulder to shoulder with Trudeau and Canadian people and my number one goal is to protect jobs in Ontario, starting with my unwavering support for our steel and aluminum workers.” US meets its steel and aluminum requirements mostly from Canada, Mexico and China. Some imports are also made from the European Union and a small portion from India. Trump hiked the tariffs steeply on these two items in particular.

India has also been hit by Trump’s unilateral sanctions on Iran and the threat of invoking US CAATSA on Russia that could affect defence purchases of New Delhi from Moscow. India’s oil imports from Tehran are going to become more complicated and difficult.

China is also facing Trump’s fretting and fuming. In mid-June, he had slapped a 25 per cent tariff on Chinese products worth about $50 billion. China responded with a 25 per cent tariff on $34 billion worth of American goods. Lately Trump has threatened additional tariffs at the rate of 10 per cent on $200 billion worth of Chinese goods. Pat came the Chinese promise of counter measures.

It would be too naïve to think that global economy would not be hit when two large elephants fight. There is a view that the head of $16 trillion economy is merely mere posturing. There is no denying however that Trump’s antics can pull down the global trade growth by 1 to 1.5 per cent.

“This is certainly not good for global trade,” warns Ajay Sahai, Director- General, Federation of Indian Export Organisations (FIEO).

Global trade is usually 1.5 times that of global growth rate; it clocked 4.7 per cent in 2017. It is expected to register 4.4 per cent in 2018 and hover around the same range for the next two years. This is nowhere near the 4.8 per cent growth global trade had averaged for two decades before the 2008 financial crisis.

If the global economy slips into yet another recession, Trump will have to bear the cross fully and squarely.