The latest moves in the trade dispute between the US and China represent a worrying escalation. Whatever the underlying issues, trying to solve them by imposing tariffs on such a wide scale is a dangerous tactic which threatens to turn the slowdown in developed economies into something worse.
The origin of the dispute goes back to President Trump’s election campaign and his promises to take a tougher line on trade, particularly with China. The US may indeed have some legitimate gripes with China in areas such as intellectual property and state subsidies, but Trump was also trying to play into a wider agenda of dissatisfaction with stagnant living standards and growing scepticism about globalisation.
Following the imposition of tit-for-tat tariffs last year, peace broke out and talks got underway between the US and China. The president’s dramatic move to hike tariffs on $200 billion of Chinese imports last Friday, and China’s response with new tariffs on US imports, represented a surprise breakdown. Stock markets tumbled.
It remains to be seen if talks restart, with a G20 meeting in June seen as a possible location to broker a way forward. However the US president's move to ban the use of equipment from Chinese mobile company Huawei on US networks – and require US companies to get special clearance to sell products to the company – has raised tensions further. The danger now is that, whatever the economic damage, both sides may dig in. China has options to act via its purchases of US goods and its huge holding of US government bonds.
Trade wars do direct economic damage. Contrary to what Trump has claimed, they increase prices for US consumers and for businesses buying intermediate goods. There will also be damaging to the Chinese economy. Tariffs raise costs and cause inefficiency, while any benefit to industries protected is likely to be transient.
The trade tensions also threaten a wider impact on international economic confidence at a time when nervousness already prevails. There are reports that the US president will delay threatened tariffs on car imports from the EU, though the prospect will remain. As the next presidential election comes into view, the risk of further trade aggression from Washington may grow.
This all carries dangers for Ireland, not directly – for the moment anyway – but from the wider impact on growth in world trade. It is also part of a broader story, a disenchantment with globalisation and the unequal spread of benefits, also evident in changes in the international tax arena.
For the moment we must hope that sense prevails and prevents a further escalation in what is becoming a nasty conflict. No one wins in a full-scale trade war, but given the building tensions between Washington and Beijing, this is precisely what is threatened.