Biswajit Dhar

In the past few months, President Donald Trump has authorised a series of protectionist measures, the likes of which have not been seen in the postwar decades. The first salvo was fired in early March 2018, with the imposition of tariffs on imports of steel and aluminium from all countries except its immediate neighbors, Canada and Mexico. The President of the United States (US) then turned his attention to China, announcing that relatively high tariffs would be imposed to counter, what he perceived was “unfair” trade practiced by the second largest economy. Both acts of protectionism were promptly responded to by the targeted countries, resulting in a virtual trade war between several major economies. In particular, China adopted a tit-for-tat strategy, escalating the conflict Over the past two months, the two countries have raised tariffs on $100 billion worth of bilateral trade, and both have threatened to expand the net much wider.

The trade conflagration seems to be particularly ill-timed. Over the past several months, major economies, including that of the US, have seen sustained growth, which has not happened since the economic recession of 2008. In this distinctly upbeat mood, not many would have anticipated these confl icts, less so the intensity of trade retaliation that is on view. But, now that the initial rounds of trade retaliation have played themselves out, there is a need to consider carefully, the implications of the actions that have already been taken and also those that are likely in the months ahead. While a trade war between the US and China would have an adverse impact on global economy, the unilateral actions taken by the two countries bypassing the rules-based multilateral system under the World Trade Organization (WTO), could have a far serious impact on global economic governance.

This article will put in perspective President Trump’s protectionist policies. We will argue that the US President is diverting the attention from the structural problems in the world’s largest economy which have caused its trade imbalances by blocking imports from the major economies. We will first examine whether the US trade administration has adequate justification to target its partner countries. This question has added relevance since President Trump had drawn a link between imports by the US and the decline in its manufacturing sector, which has, in turn, resulted in job losses.

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(This article was originally published in the Business Line on September 15, 2018)

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