US President Donald Trump’s decision to impose punitive tariffs presents a profound challenge to the global economy and forces every country to decide whether they want to come together and cooperate or go it alone, says DW’s Henrik Böhme.
It seems that a global trade war is on. In early March, President Trump declared that trade wars “are good, and easy to win” for a country like the US that, as he described it, loses billions of dollars on the practice with most other countries. Trump’s assertion came after he announced his intention to slap a 25-percent tariff on steel and a 10-percent tariff on aluminum imports.
Weeks later, the US leader followed up by announcing massive tariffs on China, a move that could lead to a trade conflagration between the world’s two biggest economies, with potentially devastating spillover effects for the rest of the world, including Europe. In response to Trump’s actions, China announced a list of potential tariffs on US goods and stressed that it was “not afraid of and will not recoil from a trade war.”
The steel and aluminum tariffs went into effect on March 23, although some countries and the 28-member European Union managed to secure a temporary exemption from the measure until May 1.
The current situation casts a dark shadow over global economy and turns Trump into an icon of critics of globalization and free trade. When the EU and the US, under Trump’s predecessor Barack Obama, engaged in negotiations over an ambitious free trade deal — the Transatlantic Trade and Investment Partnership (TTIP) — thousands upon thousands of these critics marched across Germany with their “Stop TTIP!” banners.
The envisioned agreement was a great feast for such demonstrators, offering them a catch-all for everything wrong with the system: Unbridled capitalism, greed, the intensifying North-South conflict, the gap between rich and poor, and the anti-Americanism smoldering in certain circles. TTIP was to blame for it all.
The protesters were worried about the encroachment of US-style capitalism and its potential effect in terms of undermining the achievements of the social market economy. Critics strongly objected, for instance, to the provision of arbitration tribunals, a hot-button issue in Europe, especially in Germany. Such private tribunals give investors the opportunity to sue a government if they feel that a country’s laws restrict their “legitimate expectations.”
A case in point is the claim for damages made by the Swedish energy company Vattenfall against Germany for the decommissioning of several nuclear power plants. An open and transparent debate could have been undertaken to clarify these issues and resolve the distrust.
‘Thank you Donald!’
TTIP was, after all, really about dismantling trade barriers on both sides of the Atlantic and abolishing tariffs on the movement of goods. We all now know, for example, that the tax rate for cars shipped from Germany to the US is just 2.5 percent while that in the other direction is as high as ten percent. And it is things like this that anger a man like Donald Trump.
“No TTIP,” protesters may write on their banners, but it was their angry and shortsighted protests that played a not insignificant part in derailing the ambitious trade pact in the first place.
And just suppose there was an agreement today. If Trump were to think about terminating or renegotiating it — as he is currently doing with the North American counterpart, NAFTA — he would be obliged to negotiate, something he seems to dislike in his approach to tariffs.
And so Trump — a deal-maker, anti-globalist and anti-free trader — becomes an icon of TTIP protesters and critics of globalization. It will be interesting to see which banners protesters will carry should Trump eventually find his way to Germany. One suggestion is, “Thank you Donald!”
Fifteen million jobs
Of course, excitement about the “punitive” tariffs has been raging, panic over a possible trade war rising and the gloomiest scenarios repainted on the walls. But, as Donald Tusk, President of the Council of the European Union, pointed out recently, the current dispute concerns just 1.5 percent of transatlantic trade. And that is one of several reasons to consider the matter with a modicum of calm.
Far more important are the 15 million jobs that depend on open trade on both sides of the Atlantic. One thing Trump has done is hold up the mirror to Europeans and make it clear to them that they are not exactly flawless free-traders, as they like to claim.
It will be exciting to see how the journey continues. Will the protectionists gain the upper hand, will the era of free trade come to an end? Will globalization be reversed? But we should all bear in mind that the economic ties between the EU and the US account for almost half of the world’s gross domestic product. Do we really want to risk that?
Free trade works
Others, meanwhile, are showing that free trade really does have a future. The Asia-Pacific region has just agreed to a free trade agreement (without the US, because Trump did not want to get involved, and without the Chinese, who other countries didn’t want). And recently also, 44 African countries signed a free trade area treaty.
The “pause” on steel and aluminum tariffs the US just granted to the EU should be urgently used. The ball is now in the Europeans’ court and now it’s up to them to make a gesture.