Review Nepal News

Trade war: A Thucydides Trap!

www.reviewnepal.com
  Kathmandu, Nepal      August 02 2018


By M A Hossain

Recently, the US President Donald Trump has taken a step to reduce trade deficit and has made turbulent global economy and politics. President Trump has imposed tariff of 25% on steel and 10% on aluminium which has justified on the basis of national security and huge trade deficit in goods import to US. US has 375 billion trade deficit with China which has crossed the previous record. Trump said that US already has lost in trade war with China. Just because of importing Chinese products, 60 thousand American factories got to shut down and 6 million Americans became jobless. Now Trump is using his Presidential special power, section -232 of Trade Expansion Act-1962 since after Ronald Regan.

During the presidential campaign,  Donald Trump gave a clear indication of reducing trade deficit with other countries and made husting of 'Make America Great Again'. Just after sworn as president, he is fulfilling his promise to adopt a more protectionist approach to put 'America First' policy on trade which is spurring retaliatory measures by friends and foes of US. Trump has withdrawn the US from the Trans Pacific Partnership(TPP), North American Free Trade Agreement(NAFTA) and renegotiated its free trade agreement with South Korea. To protect the US interest, Trump resorted to import substitution policy. Tariff will make the imported goods more expensive for American consumers and business to buy. That will ramp up production of those goods in American industries to meet local demand. As a result it will create more jobs and will decline the graph of trade deficit.

Initially, Mr. Trump actions are motivated by pure politics and he has made it in reality. US could reduce its world trade deficit. Even US-China trade deficit has reduced 11.5% as on march 2018. The manufacturing industries became vibrant and it created 224 thousands of new jobs in US market.

Trump has opened number of fronts - Iran(JCPOA), China (trade), Jerusalem(US Embassy relocation), North Korea(denuclearization) and G-7(tariff). It is very well clear that all the fronts are his bargaining issues. And this trade war is nothing but to reduce Chinese dominance around the world. US President is well aware of China's vision "Made-in-China" by 2025. Many countries were lured by Chinese cheap products and huge investment. Over the period of decades, those nations became captive by China and started controlling the politics and national economy. And Beijing already has signalled it won't accept major change to its "Made-in-China" blueprint. Trump sees this escalating trade war with Beijing and the rest of the world, as an effort to tip the balance before it is too late and bring China into Thucydides Trap. But it also true, America's trade imbalance didn't occur overnight. Now if the balance needs to be readjusted it will take many years - perhaps decades - for this to happen.

China is much more dependent on US to export than any other country. World trade contributes 37% to China's GDP where US is 27%. Trump is taking chance with China to put tremendous pressure on Chinese economic growth. US has complained of 150 billion dollar on intellectual property right. Mr. Trump wants to reduce its bilateral trade surplus with the US by 100 billion dollar which he demands to do by buying same worth of US oil or gas.

Washington is more aggressive and offensive in the trade war while Beijing is being seen reactive, defensive and reciprocal. In my personal opinion, Beijing wants to avoid the Thucydides Trap. There is no reason to believe that both Washington and Beijing are interested to engage military conflict. What is unknown at this time is how long it will take two leaders in negotiating table for mutual beneficial trading partnership and at what cost for both countries.

The author is a political and defense analyst in Bangladesh