Tariffs have historically served a key role in foreign trade policy, especially under challenging economic conditions.China and the U.S. represent the world’s two largest economies. Some analysts fear a large-scale trade dispute could damage global growth.
CGTN’s Jim Spellman explains the role politics – not economics – plays in this dispute.
Many analysts believe avoiding a full-blown trade war makes the most economic sense for both the U.S. and China, but politics, rather than sound economic principles, may be a driving force for President Donald Trump.
U.S. trade barriers are not a new phenomenon. Over the years, they’ve been used especially when economic times were tough. For example, the 1930 Smoot-Hawley Tariff Act was signed into law in response to the Great Depression. It raised import duties to protect U.S. businesses. Fifty years later, as the U.S. auto industry faltered, import quotas were imposed on Japanese cars.
But as President Trump embraces a potential trade war the U.S. economy is doing well, with low employment and a booming stock market.
“Why now? Why all this? Why are we on a war footing? Because perhaps he fears, Mister Trump and his political advisers fear, that he may be losing the grip on the people who voted for him, and he’s thinking about the mid-term elections and maybe already gearing up for the next presidential election, and he wants to consolidate his base by showing the toughness that put him in the spotlight to begin with,” says Paolo von Schirach, President of Global Policy Institute.
Trump began his run for office promising to challenge China on trade and his administration’s tariffs are designed to help U.S. workers in rural areas and the industrial Midwest — his political base. But China’s countermeasures are also aimed at those same areas.
“Trump is seeking to appeal to people in Wisconsin, Wyoming, Montana, states like that, that frankly don’t have a lot of contact with the foreign world except through exports of soybeans and pork. And that’s where the Chinese will come in big time trying to target those industries,” says Economist Enzio Von Pfeil.
China has made clear that it will not back down from a trade war, which means the impact on the U.S. economy could get worse and Trump’s political gamble could backfire.
“If you are sacrificing your economic benefits or the welfare of your nation for political gain, when those individuals, be it agriculture or manufacture, start getting hurt because of these policies, the patriotism is not going to work. At that point, President Trump might not find a big enough American flag to hide under, because he’ll lose that election,” says Saruhan Hatipoglu, CEO of Business Environment Risk Intelligence, a private financial analysis firm.