Punitive tariffs

The only way to win a trade war is not to play

trade war, WTO
Like the EU, these would probably be your choice for punitive tariffs on America. Source: DPA

A trade war knows no winners. The United States and Europe must now solve their conflicts over steel and aluminum, cars, and company taxation through constructive negotiation. This transatlantic trade conflict also highlights a new balance of power in world trade.

Global trade has contributed to worldwide economic growth and job creation, opened borders and fought global poverty. But free trade must also be fair economically – as long as the term “fair” isn’t used to protect domestic industry from global competition. This is where opinions differ.

The US president has opened a Pandora’s box with the announcement of unilateral punitive tariffs on steel and aluminum under the guise of national security. Other countries will follow this bad example and impose tariffs on the same grounds, and the World Trade Organisation in Geneva won’t be able to do much about it.

Washington’s threat was unnecessary and unhelpful; a dialogue among the 20 most important industrial and emerging countries (G20) on reducing global steel overcapacity is now on hold. Cui bono, Mr. President? At least not the American steel worker!

81289751 getty container ship trade
Source : Getty

The European Union would do well to signal a willingness to talk now. On steel, the US must be brought back to the negotiating table. A negotiating package must be put together that includes tariffs on cars. Here there is scope for adjustments on both sides: when importing US cars into the EU and European pick-ups into the US.

In addition to customs duties, unnecessary testing and approval procedures hinder transatlantic trade. These issues should also be part of a bilateral agreement between Europe and the US. However, experience with the stalled transatlantic free trade agreement TTIP also shows that the dismantling of tariffs and non-tariff barriers requires social and political acceptance.

Just changing the name of the agreement isn’t enough. Politicians must also think anew and concentrate on the essentials from the start. Fewer customs duties and redundant checks, and more cooperation on common global standards among the world’s largest trading nations. Exceptions to free trade must be scientifically justified. “Buy national” rules, i.e. the obligation to buy first and foremost from domestic suppliers, have to be eliminated on both sides of the Atlantic.

The new global power constellation shows how important a transatlantic alliance would be. The US is withdrawing as the dominant player, and while the EU is reluctant to take stronger leadership here, China is pushing into a power vacuum, politically and economically. It’s another reason why Chinese President Xi Jinping, unlike US President Trump, presents himself as a defender of free trade at every available opportunity.

Trading nations that gain short-term benefits through protectionism will have to pay the price later...

A welcome step but only if China follows the same rules. Indeed, trade and foreign direct investment in China remain subject to many restrictions. However, the Chinese government has now announced easing of the situation for foreign car manufacturers.

A paradigm shift, but only for internal combustion engines. For vehicles with electric drives, cooperation with Chinese partners will also be necessary in the future, as China intends to become the global leader in this field in coming years. Therefore, caution is advised: China’s announcements to open up important industrial sectors as well as trade and services must now be followed by concrete action from Beijing.

All trade issues must be discussed at the global level in accordance with the rules that WTO members have given themselves. The WTO is the arbitrator that ensures “fair play” in global trade. Though it’s hard to believe at the moment, the WTO was founded at the behest of the US, and the US has used and shaped the organization intensively over the past decades. And today? The US must finally make long overdue appointments of WTO appellate judges so that trade disputes can be resolved again by the WTO.

No measure, whether protectionist or shielding markets, will prevent societies from constantly changing, companies from looking for innovative business models, and people from having to be well-trained. In the short term, it may seem tempting for politicians to protect individual economic sectors and save jobs. But saving entire industries, and every single job, is associated with high costs, which are ultimately paid by taxpayers.

Trading nations that gain short-term benefits through protectionism will have to pay the price later: No voter is grateful for higher taxes and cost of living increases while watching jobs disappear. Not a good deal.

To contact the author: columnist@handelsblatt.com.

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