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The recent tirade by U.S. President Donald Trump regarding tariff disparities with China, India and surprisingly, Canada, has rekindled an age old debate in the international political economy – whether protectionism of the domestic economy is the answer to real or perceived international trade issues? The answer has been a resounding ‘no’, at least, for a country which is a global hegemon and the world’s largest economy. The economic and foreign policies of the United States are anything but timid.  The country that took capitalism to its dizzying heights cannot seclude itself from the rest of the world in the name of protecting its economy. Many scholars in the realm of international political economy, like Adam Smith, David Ricardo and Thomas Friedman, point out that protectionism is a self-defeating agenda, especially in today’s globalized world. Mercantilist protectionism, which espoused the principle of profitable trading and erecting huge trade barriers, has long made way for the increasingly interdependent global economy of the twenty-first century. The main problem is looking at international trade as a zero-sum game, where, if another wins, I must lose. This view of the President has indeed transformed the U.S. led liberal economic order to a system where retaliatory tariffs may become the norm. China and Canada have already resorted to measures such as increased tariffs on U.S. imports. Therefore, the mantra in the international economic system of today is most certainly not protectionism.

Before we delve into the intricacies of the international economic system, it must be pointed out that protectionism is one of the many gimmicks that politicians use to create an opportune image for themselves. Protectionism, it can be argued, is a complement to nationalism. Who doesn’t love a politician who puts the country before profits? But this strategy of winning popularity and consequently votes does not help the domestic economy at all. Even worse, it creates a situation where import becomes expensive, unemployment is on the rise and the domestic industries become less and less competitive on the international stage. Therefore, it is quite clear that Trump’s strategy does not benefit the U.S. economy, but it certainly does create a favourable impression in the minds of thousands of low-skilled blue-collar workers who are misled by politicians to blame globalization for their misery. In the end, it is these very workers who are left to fend for themselves, as their employers either shut-down the industry or move it overseas because of the rising cost of American exports caused by retaliatory tariffs. In order to appease this class of workers, subsidies are doled out without regard to the burden that this measure will have on the nation’s fiscal deficit. Such populist measures engender the vicious cycle of unemployment, low productivity and debt.

The most ironic aspect of this neo-mercantilist ‘war’ is that, as a conservative Republican, Trump is expected to side with other conservatives who believe in a free market and frown upon unwanted interventions of the state. But, this ideological quagmire does not seem to matter to the President because of his ‘America First’ campaign. The fact that one of the United States’ closest allies, Canada, was also not spared from the rise in tariffs shows that the target is not limited to America’s economic rivals like the European Union (which has as its members a number of U.S. allies)  China and India, but to all and sundry. Another aspect that the U.S. is forgetting is that the world, unlike in the 1960s and 1970s, is no longer a place where the U.S. could bully other countries into compliance. There are real repercussions to taking reckless decisions, especially in matters that relate to a country’s foreign policy. This was only evident when Canadian Prime Minister, Justin Trudeau announced retaliatory tariffs on American imports and so did China, a country that is destined to overtake the U.S. economy in the coming decade. Moreover, such precarious economic policy is bound to alienate allies even in other areas such as security cooperation, as was seen in the recent NATO Summit in Brussels held on 11th and 12th July 2018. Leaders of America’s close allies like France, Germany and the United Kingdom did not shy away from calling out Trump’s unjustified, self-preserving and unilateral rise in tariffs and cautioning the U.S. about a potential fall-out in this regard.

An interesting development has been the part that India has played in this neo-warfare. This trade war seems to have jeopardized India’s prospects of becoming a major non-NATO U.S. ally in Asia because India was blamed for having taken advantage of the low import tariffs prevalent among companies of the U.S. automobile industry. The Trump Administration hiked tariffs on a diverse set of goods including steel, aluminium, almonds and apples. Such a development will certainly hinder India’s recent shift-of-focus from Russia towards the United States. India did retaliate to such primitive trade measures by imposing countervailing tariffs on almost a dozen U.S. exports. Although the economic impact from such measures may be minimal and temporary, it will seriously affect India’s prospects as a major player in the relationship paradigm between China and the U.S., resulting in a situation where India is only a third party in a competition between a hegemon and an emerging hegemon. Considering China’s reckless behaviour in the South China Sea conflict, its history of aggression with India may amplify as India is left without a major ally in the Asian region, despite Russian support.

Having assessed the varied influence that a neo-mercantilist trade war can have in determining the future of economic and foreign relations between states, it is safe to say that such protectionist measures, especially from the United States which is a harbinger of global capitalism, is bound to have deleterious effects on global trade and security. Indeed, the Pax Americana that was heralded in the aftermath of World War II, has today been reduced to incessant bickering from a leader who does not seem to understand or care that the world economy of the twenty-first century is more than retaliatory tariffs, import substitution and protectionism and that it is about interdependence and co-operation. But until this is realized and re-enshrined in the American economic policy, countries like India should be wary about such erratic measures from the United States, for, it could jeopardize our own economic and foreign policies. The most feasible solution to this dilemma would be to lodge a formal complaint with the World Trade Organization and pursue the same through the dispute settlement mechanism of this international organization. A dispute with the U.S. will certainly be exhausting given its stature as the largest economy, but it must be pursued nonetheless. More crucially, the American people must understand that any action of their government will have wide-ranging and far-reaching consequences for other nations. It is their responsibility to ensure the accountability of the government and that the consequences of its actions are fair and equitable not only to the U.S. but also to other smaller and less powerful nations.

References

Annie, G. (2018, June 21) India imposes retaliatory tariffs on U.S.,widening global trade war. The Washington Post.  Retrieved from https://www.washingtonpost.com/world/india-imposes-retaliatory-tariffs-on-us-as-global-trade-war-widens/2018/06/21/7c3a016b-1de0-497a-9635-a522bc55810a_story.html?utm_term=.22480685494f

Lim, T. C. (2014). International Political Economy: An Introduction to Approaches, Regimes, and Issues. Washington, D C: The Saylor Academy.

White House tariff move reignites US trade war with China. (2018, May 30). Financial Times.  Retrieved from https://www.ft.com/content/eeb93e74-6352-11e8-90c2-9563a0613e56

Image credit: Globalmeatnews.com

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Written By Nishanth Chakkere Ramesh

Undergraduate student of Business Administration and International Relations, with a keen interest in understanding the cause of things.

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