US President Donald Trump surprised many who thought he could not surprise them any further, when he announced he was contemplating imposing 25 per cent tariffs on steel and 10 per cent on aluminum imports. But Canada is America’s biggest steel supplier (16 per cent) as well as aluminum (40 per cent) while the European Union (EU) and Mexico follow. While it may appear this is a fight between the developed countries, it is truly said when elephants fight, it is the grass that suffers. And Guyana is definitely “grass”, since for instance, our bauxite is refined into aluminum for which there is presently a glut, and tariffs will further exacerbate that situation.
While the US is defending its move as addressing a “security threat” – which is allowed by present World Trade Organisation (WTO) rules, the countries affected – such as the EU – have already announced they will retaliate. Meeting yesterday, the European Commission said it “stands ready to react proportionately and fully in line with the WTO rules in case the US measures are formalised and affect EU’s economic interests”.
Rather than submit a case to the WTO’s Arbitral panel that adjudicates such matters, the EU will most likely invoke another WTO rule and define its actions as a “safeguard measure” which will permit them to issue counter-tariffs more quickly than a traditional WTO lawsuit. The latter becomes problematical since after the US blocked the appointment of new members of the panel and it is now at half its strength.
Trump’s move threatens the entire edifice of the WTO which developed since 1995 to create a more level playing field for members in trade. Globalisation was built on free trade and increased communications and in picking up steam in the latter half of the 20th century, brought hundreds of millions out of poverty all across the globe but especially in Asia. It is the only hope for countries such as Guyana which has to be allowed to export or perish. Free trade was the 18th century economic proposition that insisted if each country focused on producing goods for which it had a “comparative advantage”, and then traded these goods with each other without imposing tariffs, every country will benefit in the end.
While this appears self-evident, the more powerful countries always tried to game the system for their own benefit. Since the 19th century England, the US and then Germany used their manufacturing prowess to dominate world trade and were the most vehement proponents of free trade. Matters reached a head in the 1970s when the debt crisis in the Third World gave the IMF – controlled by the developed countries – the wherewithal to insist on the lowering of tariffs and financial controls.
But the WTO developed into a formidable force under the aegis of the new “emerging economies” such as India and China to form a counterpoise to the developed countries’ hegemonic position. The rules on agriculture, for instance, were stacked against the poorer countries which had a comparative advantage in that area. From the beginning of the new millennium, the WTO Doha “Development” Round of negotiations was launched to bring some equity into the picture but the developed countries have derailed that initiative after their markets crashed in 2007.
The greatest danger posed if a trade war develops would be to increase the WTO’s present ineffectualness. As such, trade may revert to the status quo ante when the big fishes will eat the little fishes. Trump appears willing to bring down the whole edifice of free trade to placate his blue collar base in the American “Rust Belt” – so called because of the loss of manufacturing jobs to the emerging economies.
However, it has been proven since their own “Great Depression” that while tariffs may address some symptoms of job loss, ultimately it will fail because it does not address the structural problems. Like with our sugar industry in Guyana, governments will have to stimulate alternative value-added economic activities to absorb the jobless rather than imposing tariffs.
