The world faces its worst trade wars since the 1930s

Donald Trump’s re-election accelerates a crisis for globalisation

THE WORLD stands on the brink of multiple trade wars. Some will be unleashed with enthusiasm by Donald Trump, a man who hails tariffs as “the greatest thing ever invented”. Yet other, more reluctant clashes will surely follow, begun by blocs and countries whose prosperity depends on access to foreign markets. Expect those unhappy warriors, notably those based in Beijing and Brussels, to insist that—if forced into battle—their aim is to keep markets open and competition fair, not to tear the system down. Alas, the distinction matters less than defenders of globalisation hope. History records many examples of protectionists wreaking economic havoc. But trade-friendly governments often feel obliged to retaliate, too, rather than stand accused of abandoning domestic industries.

Chinese leaders talk a good game about defending free trade, while pursuing resolutely self-interested trade and industrial policies (AFP)

Mr Trump returns to power with a mandate to impose tax rises on trade, and on a historic scale. The Smoot-Hawley Act of 1930 raised the average tariff on dutiable imports by six percentage points. Protectionist moves and counter-moves that followed shrank overall global commerce for years. Mr Trump threw out still larger numbers on the campaign trail, threatening China with an across-the-board 60% tariff, growling about taxing Mexican cars at up to 500%, and about a flat tariff on other imports of 10-20%. Those numbers should be taken seriously, but not literally. Tariffs are coming, but Robert Lighthizer, the trade representative in the first Trump administration, has told associates not to expect 60% tariffs on China right away. Mr Trump’s trade goals are “all about leverage” and cutting deals, says a former official. Others in Trumpworld predict a twin-track approach: use tariffs to negotiate with friendly countries and to lean on bad actors.

An openness to dealmaking should not distract from the magnitude of Mr Trump’s ambitions. In pre-election conversations in Washington, Republican trade hawks talked of ending what they call the seven-decade blunder of opening American markets to global competition. As one hawk put it, other countries cannot be faulted for building up vast export sectors and treating Americans as “their consumers of last resort”. Nor can American companies be blamed for seeking out cheap places to make things. But the costs of globalisation have turned out to be unacceptably high, so a reset is required. Mr Trump’s ideal is said to be balanced trade, though rebuilding key industries matters more than the size of this or that bilateral trade deficit.

America will still trade with China in a second Trump term, it is conceded. But the administration will seek to permit only trade in unthreatening consumer goods and commodities. There may be purchase quotas agreed by the two governments, while tariffs generate new revenues. There is an incoherence here: trade hawks argue that tariffs do not cause inflation because, in the first term, Chinese exporters cut prices and absorbed the pain to maintain market share in America. The same hawks then predict that new tariffs will raise “artificially low prices” for Chinese goods, thereby creating economic incentives large enough to alter trade flows, helping domestic firms to employ more Americans.

When it comes to strategic goods and technologies from China, Mr Trump can raise some tariffs on day one by adjusting penalties imposed in his first term under Section 301 of American trade law, punishing China for alleged abuses including forced technology transfers. He could then announce a fresh Section 301 probe to address “new Chinese misdeeds”, as a hawk puts it. Tariffs could also be folded into a federal tax bill due in 2025, perhaps claiming that they offset domestic tax cuts. As for the rest of the world, Mr Trump could issue an executive order directing his trade representative to examine all of America’s trade deficits.

Same trade tensions, very different solutions

The Biden administration suspended tariffs imposed by Mr Trump on European steel and aluminium while it sought an agreement on climate-friendly “sustainable” metalmaking. It also suspended Trump-era tariffs on Airbus, a European builder of aeroplanes. Should Mr Trump reimpose those tariffs and more, the European Union would face hard choices. It has been inching towards its own trade fight with China, recently imposing tariffs on Chinese-made electric cars despite China’s threats to retaliate against European pork and other goods. That challenge to China is complicated by Mr Trump’s re-election since Europe can ill-afford a trade war on two fronts. Behind closed doors, European officials admit that their motives in confronting China are very different. Europe is getting tough in order to convince China that its heavily subsidised, export-driven growth is not politically sustainable, they say. But their goal is to rebalance trade flows, not sever them. Governments will no longer tolerate “a world in which Europe is open and China is closed”, says one.

In Washington, trade hawks harbour no hopes of changing China’s behaviour. In their telling, Mr Trump wants to re-industrialise America. He can’t break China or stop China. But he can defend the economy from “a China shock 2.0”, says one.

Chinese leaders talk a good game about defending free trade, while pursuing resolutely self-interested trade and industrial policies. China could resolve tensions by letting its electric-car makers and other industrial champions open plants overseas and share advanced technologies with foreign partners—following the same model that China imposed on foreign firms as a price for access to Chinese markets. To date, though, Chinese officials have discouraged such transfers. Your columnist asked a European diplomat in Beijing whether a trade war is inevitable. Coming months will show whether China understands that it must change its ways, was his reply. “Will we achieve that in time? I don’t know,” he admitted. Mr Trump’s victory speeds everything up.