Ev­ery­one loses an all-out trade war, but some of the poor­est coun­tries lose the most

The East African - - OUTLOOK - By AN­DREW VAN DAM The Wash­ing­ton Post

EV­ERY­ONE LOSES if Don­ald Trump shifts the fo­cus of his trade war to the World Trade Or­gan­i­sa­tion. But a new anal­y­sis of global trade in more than 5,000 com­modi­ties shows some of the world’s poor­est coun­tries would suf­fer most.

In re­cent days, the pres­i­dent has broad­ened his an­tichina trade tirades to the “un­fair” WTO, which he has called “great for China and ter­ri­ble for the United States.” It’s un­likely Trump’s rhetoric will bring the WTO crash­ing down, but we can see how a dooms­day sce­nario could un­fold.

As in­ter­na­tional trade ref­eree, the WTO is the main ob­sta­cle be­tween the global econ­omy and what in­ter­na­tional trade econ­o­mist Peri da Silva and his col­lab­o­ra­tors es­ti­mate would be a crush­ing 32-per­cent­age-point aver­age jump in global tar­iff lev­els.

A rogue ac­tor can un­der­mine the whole sys­tem.

Last month, Trump used a na­tional-se­cu­rity pro­vi­sion of the US Trade Ex­pan­sion Act of 1962 to re­strict steel and alu­minum im­ports. This month, he used an in­ves­tiga- tion based on the US Trade Act of 1974 to pro­pose tar­iffs on $50 bil­lion in goods from China. Days later, he threat­ened tar­iffs on an ad­di­tional $100 bil­lion of Chi­nese prod­ucts.

China promised to re­tal­i­ate in kind, but has typ­i­cally paid lip ser­vice to the WTO dis­pute-res­o­lu­tion sys­tem.

By act­ing out­side the WTO, Trump in­creases the risk that other economies will do the same, un­der­min­ing the or­gan­i­sa­tion’s au­thor­ity and ef­fec­tive­ness.

With­out the WTO, da Silva says, coun­tries would use their mar­ket power to raise tar­iffs as high as mar­kets would bear — not un­like cor­po­ra­tions set­ting prices in a com­pet­i­tive mar­ket.

This would dis­rupt in­tri­cate global sup­ply chains and force com­pa­nies to pay more for im­ported raw ma­te­ri­als and other goods. At the same time, in­ter­na­tional mar­kets would shrink as trade part­ners throw up re­tal­ia­tory tar­iffs. Mean­while, con­sumers get less bang for their buck as prices rise in ac­cor­dance with the tar­iffs.

The pro­tec­tion­ist plague won’t hit all coun­tries and in­dus­tries equally. We know that be­cause da Silva, a pro­fes­sor at Kansas State Univer­sity, and fel­low trade economists Alessan­dro Nicita of the United Na­tions Con­fer­ence on Trade and De­vel­op­ment and Marcelo Olar­reaga of the Univer­sity of Geneva, cre­ated a de­tailed model of each coun­try’s rel­a­tive mar­ket power, based on the char­ac­ter­is­tics and quan­ti­ties of the 5,000plus goods they trade with more than 120 part­ners.

For an up­com­ing pa­per in the Jour­nal of Po­lit­i­cal Econ­omy, they cal­cu­lated the lever­age each coun­try had over each com­mod­ity, given their part­ners, cir­cum­stances and share of the mar­ket. The US hap­pens to have un­usual mar­ket power over ce­ramic build­ing bricks, chicory and cer­tain spe­cialised steel prod­ucts, while China could flex its mus­cles over cer­tain tung­sten prod­ucts, silk ties or pre­served pineap­ple.

Haiti, still re­build­ing from the 2010 earth­quake and 2016’s Hur­ri­cane Matthew, lacks al­most any mar­ket power and de­pends heav­ily on trade with pow­er­ful part­ners such as the United States. It needs the Amer­i­can mar­ket and has lit­tle ac­cess to al­ter­na­tives. In a cruel, ra­tio­nal world, it might face tar­iffs as high as 97 per cent. The same goes for other Cen­tral Amer­i­can and Caribbean na­tions, as well as Amer­ica’s NAFTA part­ners.

The United States is well built for a trade war. It can cause a lot of dam­age to trade part­ners should it pur­sue an ag­gres­sive Amer­ica-first pol­icy. It has the size and eco­nomic in­de­pen­dence to with­stand sig­nif­i­cant re­tal­i­a­tion. But that doesn’t mean that trade wars are easy to win— de­spite what the pres­i­dent says.

“In prin­ci­ple, you could win,” da Silva said, “but from our mea­sures you clearly don’t have any­body pow­er­ful enough.”

The Euro­pean Union ranks above the US as the most pow­er­ful en­tity in the aca­demics’ model, and China com­bines its mar­ket clout with an au­thor­i­tar­ian gov­ern­ment that gives it the re­sources to sub­si­dize threat­ened do­mes­tic in­dus­tries while free­ing it from the need to an­swer to vot­ers.

When each coun­try ex­ploits its full ad­van­tage, the US would face about 30 per cent tar­iffs, the EU would face 36 per cent and China would face 39.5 per cent. That’s about a ten­fold in­crease from the cur­rent rel­a­tively neg­li­gi­ble tar­iffs of around 3 to 4 per cent.

Poor and trade-de­pen­dent coun­tries such as Sri Lanka, Zim­babwe and Ethiopia would be hit even worse.

Th­ese coun­tries have been the ben­e­fi­ciary of the WTO — ar­guably even more than China — and would suf­fer most from its fail­ure, fac­ing tar­iffs of above 50 per cent.

The US is well built for a trade war. It can cause a lot of dam­age to trade part­ners should it pur­sue an ag­gres­sive Amer­i­cafirst pol­icy.”

Pic­ture: File

Poor and trade-de­pen­dent coun­tries such as Sri Lanka, Zim­babwe and Ethiopia would be hit even worse.

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