EconoMatters, Global Pairings

Trade Wars and the Clash of Perceptions

Trump sees China as a wealthy country with many poor people, while China sees itself as a poor country with wealthy people.

Credit: danielfela Shutterstock.com

Takeaways


  • Are we witnessing a process of de-globalization?
  • Underlying the trade war unleashed by Donald Trump there is a clash of perceptions.
  • The main countries with which the US runs a trade deficit are China (47.1% of the total), Mexico (8.9%), Japan (8.6%), Germany (8.1%) and Vietnam (4.8%). With the EU as a whole, the figure is 19%.
  • Beyond Europe and China, the Trump Administration perceives NAFTA not only as outmoded but as having benefited its two partners more than the US side. That is more than debatable.
  • It is important to remember that US Democrats do not embrace free trade with any great enthusiasm either.

When China joined the World Trade Organization (WTO) in 2001, it was still a developing country. More than 15 years later, its circumstances have changed and it has turned into the world’s second-largest economy.

The WTO has served not to discipline China, which is what Trump (and to some extent the EU, albeit more discreetly) now seeks, but rather to give it global thrust.

Trump wants to stop China overtaking the United States technologically. Underlying the trade war unleashed by the current U.S. President, there is a clash of perceptions. It is said that Trump sees China as a wealthy country with many poor people, while China sees itself as a poor country with many wealthy people.

The European dimension

This clash of perceptions extends beyond the U.S.-China dimension. The Trump Administration views Europe as a group of wealthy countries that the United States defends at its own expense. This is why it is asking the Europeans to spend more on their defense, with the mercantilist catch that they buy U.S. weaponry.

The EU will spend more, but predominantly on the EU countries’ own systems. If the €13 billion earmarked by the European Commission for the new European Defense Fund is approved, it will be spent on European projects.

The Trump Administration also views Europe through the prism of Germany, even though that country’s trade surplus is first and foremost a concern for Germany’s own partners in the EU.

U.S. tariff increases are primarily aimed at Germany, with the sword of Damocles hanging over the automotive industry, a fundamental component of German exports.

Beyond Europe and China, the Trump Administration perceives the North American Free Trade Agreement (NAFTA) with Canada and Mexico not only as outmoded (it is, having been signed in 1992), but as having benefited its two partners more than the U.S. side. That is more than debatable.

The Europeans, meanwhile, tend to view Trump more as a cause than a symptom of what’s going on. That yields yet another clash of perceptions that makes it more difficult to find solutions.

From the EU perspective, it should not be assumed that, even if Trump were to lose the next presidential elections to be held in 2020, U.S. trade policy will undergo substantial change.

Not just the Republicans

It is important to remember that the Democrats do not embrace free trade with any great enthusiasm either. In fact, politically they have been the stronger defenders of the victims of free trade in the past.

According to data published by the Círculo de Empresarios, the main countries with which the U.S. runs a trade deficit are China (47.1% of the total), Mexico (8.9%), Japan (8.6%), Germany (8.1%) and Vietnam (4.8%). With the EU as a whole, the figure is 19%.

However, the statistics tend to reflect an outdated model. Digital transactions do not appear in many accounts, nor does a growing and currently crucial component of such transactions, namely the trade in data, which is not covered by the WTO. The rules applied to offline trade are not the same as those applied online.

The Trump Administration has used national security as the pretext for its protectionism. But, in point of fact, what does national security have to do with, for instance, importing cars (or olives) in peacetime?

As the German Foreign Minister, Heiko Maas, likes to point out with more than a hint of irony, U.S. streets and freeways “are more secure with German cars.”

The deadlocked WTO

Moreover, Donald Trump has deliberately deadlocked the WTO, where trade disputes are supposed to be settled. For the last year, his administration has vetoed all judicial appointments to the organization’s seven-member appeals chamber, which is charged with resolving trade quarrels.

That said, the WTO is in dire need of in-depth changes. As Pascal Lamy, the WTO’s Director-General between 2005 and 2013, pointed out at the recent Global Solutions 2018 in Berlin, the WTO is an organization in which its member states rule supreme.

In other words, its board and Director-General (by contrast to the UN, or indeed the EU) have little scope for taking the initiative. In this respect, and others, change at the WTO is in order.

Many of these problems predate Trump. Not everything can be laid at his door. Since 1994, the WTO has achieved little in terms of multilateral trade agreements. Previous U.S. administrations, including Obama’s, favored bilateral trade agreements, with the exception of the transpacific (TPP) and transatlantic (TTIP) treaties. The latter was undermined in the 2016 election campaign not only by Trump, but also by his Democratic rival, Hillary Clinton.

It is also evident that the G7 is not the appropriate forum to start settling these issues. But the G20 is unlikely to be the right forum either. They are useful for expressing disagreements, talking and clearing the undergrowth. But real institutions are needed, a requirement that neither the G7 nor the G20 fulfils.

Are we witnessing a process of de-globalization? As Jorge Argüello of the Argentine think tank Embajada Abierta points out, the costs of de-globalization are much higher today than 20 or 30 years ago.

Editor’s Note: Adapted from Andres Ortega’s Global Spectator column, which he writes for the Elcano Royal Institute.

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About Andrés Ortega

Andrés Ortega is senior research fellow at the Elcano Royal Institute, a major Spanish foreign affairs think tank.

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