Here's why Trump's trade war with China is a disaster for everyone else's economy too

These types of trade wars are a menace to everyone from the crews at Heathrow airport to a sheep station in New Zealand

Sean O'Grady
Friday 10 May 2019 09:56
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Donald Trump says China 'broke the deal' after trade talks

No one gets gets killed in a trade war, leastways not directly. That I suppose is why people don’t take half as much notice of Donald Trump’s open belligerence towards China over economics as they do say about his relations with North Korea or laissez faire attitude towards Israel.

We should. It is so long since the era of protectionism, pre-Second World War, that it seems scarce believable that the two largest economic powers in the world are about to unleash a new one, but the mutual threats to escalate tariffs look serious.

Everyone loses. American consumers lose access to the choice, technology and increasingly quality in Chinese products – in the form of 5G smartphones, let’s say. American workers and farmers lose out when Chinese markets are closed off to their exports – corn, poultry, minerals. Each group in each country has less to spend on each other’s imports, and the downward cycle begins.

It may then be turbocharged by fresh retaliatory sanctions, maybe adding currency or exchange rate manipulation to the toxic mix, as we saw in the 1930s, years of great technological progress but economic wars, autarky and depression.

This is not a private squabble. American and Chinese exporters will seek to shift their goods for cheap in other global markets. That dumping will depress prices, profits and employment everywhere – Australian farmers, German steel makers, Korean electronics, Brazilian miners. Those effects also feed off each other in new downward spirals. They too may retaliate to protect domestic producers.

Donald Trump says China 'broke the deal' after trade talks

Trade wars in other words are a menace to everyone from the crews at Heathrow airport to a sheep station in New Zealand. They mean the world will have less money to spend, and governments less tax revenues. It means recession or worse. Trump and Xi know this, and yet are unwilling to pull back.

Or do they? Trump actively dislikes trade and is a natural protectionist. His ignorance is the big reason he can’t find a sensible economic adviser. He reportedly wrote “trade is bad” on a draft speech text. Xi is the usual Chinese boss – mercantilist and inclined to see economics as an arm of great power play, hence the Belt and Road Initiative and its whiff of neo-colonialism.

It’s not a geopolitical marriage made in heaven, Xi and Trump, and you also have to wonder whether the summering diplomatic and military clashes about the South China Sea and the role of Huawei will add another nasty dimension to the trade wars. In which case somebody might get hurt.

Anyhow, the rest of us can only look on. By the way, this is maybe not a great moment for little Britain – in real terms about the 10th largest world economy – to try and forge new free trade deals on her own with the two or three largest (China, the EU and the US).

For all its many faults, and indeed its own version of protectionism, such as the Common Agricultural Policy and its massive taxes on food imports, at least in the EU we have that strength as part of a major economic bloc in a world of economic superpowers. The only real alternative to that is for the UK to declare a policy of unilateral free trade with all, post-Brexit.

British consumers and companies would then be able to take full advantage of the depressed prices of world commodities and export goods – but with all the disruption to British workers in industry and farming that also entails. Given that Brexit is basically a protest against globalisation, I very much doubt we’re ready for that.

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