World on course to trade war

Tuesday, June 05, 2018

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Mexico yesterday said it would be filing a complaint with the World Trade Organisation (WTO) against US tariffs on its steel and aluminium, joining the European Union and Canada which have already opened legal challenges to the US at the Geneva-based arbitrator of international trade disputes.

This represents a relatively swift response to last Friday's decision by the United States Administration to move ahead with the imposition of a 25 per cent tariff on steel and 10 per cent on aluminium, first announced by President Donald Trump in March.

US Commerce Secretary Wilbur Ross said talks with the EU, Canada, Mexico, and China had not made enough progress to prevent the tariffs coming into effect.

The tariffs have pitted the US against some of its staunchest allies and have triggered fears of an all out trade war that could hurt the world economy, with vulnerable economies like Jamaica's likely to be hardest hit.

President Trump campaigned on a political platform that the huge trade deficit in the US economy, malaise in traditional industries, and unemployment among the traditional white working class were due to trade deals which had invited cheap imports and encouraged corporations to ship jobs overseas.

Trump attributed the deficit to the “bad trade agreements” and unfair trade practices of both allies and non-allies, pointing to cheap labour and exchange rate manipulation, in which China is said to be the main culprit.

Critics say this allegations are not supported by credible empirical data and counter that several sectors of the US economy are no longer internationally competitive. They accuse the US of contravening the rules of the WTO, which the US had forced the world to accept in the name of free trade.

The proposed tariff increases were also justified on the basis of national security concerns. For example, Mr Trump has claimed that a robust steel industry is essential for US national security. But Mexico submits that the tariffs were not adopted in accordance with relevant WTO procedures, and also violate the 1994 General Agreement on Tariffs and Trade.

Immediately following the move by the US, Mexico said it would impose retaliatory duties on a variety of US goods, including steel, and a host of agricultural products, including apples, cheeses and pork, “until the United States Government eliminates tariffs imposed”.

Ottawa has also hit back with a proportional US$12.8 billion in tariffs on US steel and aluminium, as well as consumer goods.

China buys $14 billion of soybeans from the US and has hinted it could end the purchases.

The common worry is that these types of action could spark even more widespread retaliation and set in motion a downward spiral degenerating into an unprecedented trade war.

Jamaica does not have much wiggle room, if any, should a fully fledged trade war result. We can only hope that good sense prevails and that the concerns expressed by a broad cross section of American businesses and several Republicans, including Speaker Paul Ryan, are heeded.

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