US, China should know that 'last lick' can be a dangerous game

Sunday, April 08, 2018

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When two elephants fight, the grass is crushed. In the case of the looming trade war between giants China and the United States, tiny economies like Jamaica's stand to be pulverised.

For that reason, we hope that good sense will prevail before the exchange of threats between Washington and Beijing becomes a full-fledged trade war that, we are sure, will not leave us unscathed.

US President Donald Trump blames America's huge trade deficit, unemployment and the state of manufacturing on unfair trade practices by other countries, in particular China which accounts for roughly US$116 billion in imports from America.

Last month he announced a 25 per cent tariff on steel imports and 10 per cent on aluminium. China, in direct retaliation, has announced tariffs on 128 US products affecting US$3 billion of total imports.

The escalation continues with the US threatening to impose tariffs on US$50 billion worth of goods from China which, in turn, has made it clear it will retaliate with billions of dollars in tariffs on a wide range of American goods.

The US is Jamaica's biggest trading partner and China is our biggest source of foreign direct investment. That means we have a vested interest in mutual beneficial relations between the two.

We would urge the two parties to negotiate on the basis of the rules of the World Trade Organization (WTO, which seek to lower trade barriers and discourage the erection of non-tariff barriers to trade.

These rules were achieved after long and tortuous global negotiations which, while not able to meet every single concern of every single country — an impossibility in itself — offer the best hope for fair trade between and among countries.

We note that many in the US, including some in the leadership of the Republican Party and in the private sector — such as the American International Automobile Dealers and the National Marine Manufacturers Association — are advising the president against the proposed tariff increases, recognising that international trade is not a zero-sum game.

That is why the US has had to provide exemptions to some of its important trading partners like Brazil, Canada, Germany, Japan, Mexico, and Turkey. Still, this does not control all the potential collateral damage elsewhere in the world economy.

It has been suggested that these moves and counter moves are preparatory to negotiations. But competitive retaliatory tariff escalation can be very dangerous because it can spiral out of control.

This is what led to the Smoot-Hawley Tariff Act of 1930 during the Administration of Republican President Herbert Hoover, and it is generally agreed to have been a major contributing factor to the intensification of the Great Depression.

The US and China need to put aside national pride and political posturing and recognise their mutual economic interdependence as well as their responsibility to the international community. The alternative of a trade war would be disastrous for the world.

As we know in Jamaica, a game of 'last lick' can become quite deadly.

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