18 Jun 2018

Trump trade talks create crisis of 'unimaginable proportions'

3:08 pm on 18 June 2018

By Stephen Jacobi*

You have to hand it to US President Donald Trump - if his art of the deal is to create a crisis of unimaginable proportions as a means to force an 11th-hour breakthrough, he is very good at it.

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Photo: Supplied

Fresh from securing "peace in our time" on the Korean peninsula, he now threatens the world with global trade meltdown as he prepares to implement tariffs on US$50 billion (NZ$72b) or more of Chinese imports. The Chinese are all set to retaliate in kind when - and if - the tariffs are imposed on 6 July.

Just a few weeks ago the president fell out in spectacular fashion with his G7 allies - having at one point raised the prospect of a tariff free, subsidy free zone between them. Now those who should be closest to the US are preparing all sorts of retaliation for US protectionism on steel, aluminium and other products

It's all very confusing, and doubtless plays out well with the president's base, but these are very high stakes for the global economy.

Calmer heads will point out that the tariffs apply to only about one tenth of Chinese imports and that there is time between now and 6 July for another compromise. We've seen this once already but one wonders whether there is much Chinese trust left in American officials who seem to be so easily disowned by their commander-in-chief.

US president Donald Trump

US president Donald Trump Photo: AFP

Trade wars have unforeseen consequences. Tariffs ultimately penalise consumers and industries who use imports as manufacturing imports. They give rise to inflation. They destabilise markets and threaten the viability of the international trade system. The World Trade Organisation (WTO) is already looking decidedly shaky as its ability to adjudicate disputes is curtailed by a lack of judges.

It's telling that large sections of the US business community are aghast at what's going on. The US Chamber of Commerce, the US-China Business Council and even the US Information Technology Industry Council (one of the sectors the president is trying to help) have come out against the tariffs.

What should New Zealand do? We are unlikely given our export profile to be caught up in market disruption in the United States. In China we may even experience some new demand as the Chinese seek to replace US cheese, wine and meat products.

The bigger picture though is that as disputes proliferate we could get caught in the crossfire. We are already affected by US tariffs on steel and aluminium. We depend on the WTO to uphold the rule of trade law. We have important markets in both China - where our trade agreement badly needs upgrading - and the US.

We need to press on with our own efforts to free up trade with other key partners such as through trans-pacific partnership and with the European Union, whose commissioner for trade Cecilia Malmstrom visits here to start negotiations this week.

We also need to join with others who are protesting US actions in the WTO. We need to signal clearly that when it comes to our small, trade-dependent economy we believe negotiation and dispute settlement are preferable to fool-hardy protectionism. That's the art of the deal we prefer.

*Stephen Jacobi is executive director of both New Zealand International Business Forum and the NZ-China Council. He has previously run the NZ-US Council.