Editorial Simplified: Upping the Ante | GS – II

Relevance: GS Paper II (International Relations)


Why has this issue cropped up?

The rules-based world order for international trade appears to be in for a rougher ride after the US announced this week that it would be slapping $200-billion worth of Chinese exports with 10% tariff, ratcheting it up to 25% by the year-end.


China’s response

Less than 24 hours after the U.S. announcement, China said it would apply retaliatory taxes to the tune of $60 billion.


Implications of the trade war

There are two questions that this escalation raises.

  • First, what is the likely trajectory of this conflict?
    • Economists concur that in the near term the trade war will cause a shrinkage in bilateral trade volumes.
    • Businesses in the U.S., China and nations with close trade and investment links to the two countries, such as those in Europe, will find themselves in considerable economic trouble.
    • Over the longer term, a reversal of the globalization of supply chains may take place — perhaps that is the very aim of the Trump administration.
  • Second, what impact will this trade war have on the future of the hyper-connected world that we live in today?
    • China, and indeed any other nation that trades with the U.S., may seek alternative markets and trading partners if the American government persists with its retreat into economic isolationism.
    • Yet, even if countries can avoid some of the punitive costs of this battle, global institutions such as the WTO and a myriad other multilateral rule-making bodies will wither away, losing their authority.
    • This would, in the much-longer term, be a loss for the world community of nations, many of whom have worked hard to establish and credentialise the post-World War order precisely in order to stave off the dark forces of parochialism that engendered the horrors of that period.

Conclusion

The U.S. could have gone about this by applying its resources through bodies such as the World Trade Organization to penalize China for overproduction, dumping overseas and excessive restrictions on market access.


 

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