”We reject the ideology of Globalization and embrace Patriotism,” Mr. Trump uttered when he took the podium of the UNGA.
An ideology which has mingled the whole world, through the exchange of products, thoughts, communication, researches, technology, and ideas among the nations; is now under the severe denigration of the president of the U.S. However, this statement by Trump surely wouldn’t have shocked the world, as the world has become accustomed to unusual happenings since Donald Trump assumed the power of the United States. From the immigration ban to threatening North Korea, entering the trade war with China to freezing aid to Pakistan, torpedoing JCPOA to leaving Paris Climate agreement; the world has witnessed a strange sort of trends, by the decisions he took.
A Republican President who succeeded the Barak Obama has entered the white house with resolute intentions of ”America First.” By fulfilling his maxim, he has even negated the trends and policies of his predecessors.
In the wake of World War 2, the renowned landmark deal ”Bretton Woods” among the Allied Powers of WW-II concluded with the idea of warding off the trade wars among the nations. In Bretton Woods deal two influential organizations – the IMF and the World Bank – conceived. The purpose of the formation of these two organizations was to get rid of mercantilism, which is a kind of economic nationalism. Mercantilism is an economic model of any state, which limits international trade. It is also the driving factor behind intensification of the Great Depression, which beset the U.S during the 1930’s. Mercantilism flourished in the 16th century and out-phased partially in the 19th century, not wholly. In the 1930’s when the Fascism was at its peak in Italy and Germany, both these countries adopted mercantilism. Countries began to impose tariffs on each other’s imports, which resulted in a fall in the world trade up to 65%. Owing to this trade among the countries crippled in their economy and thus international trade out-phased in between 1930-1940.
This trend injected fear among Allied Powers, and they witnessed mercantilism as the scourge to the trade among the world. Thus, they sailed on the idea to form the IMF and the World Bank to promote the world trade in a semblance of Globalization.
The maverick economist of 18th century Adam Smith also condemned the idea of mercantilism as he believed in mutual trade between the countries. The cerebral Adam Smith demonstrated in his book ‘’The Wealth,’’ of Nations that trade is mutually beneficial when countries specialize in producing the goods they are best at making.
Even the World Treaty Organization, which replaced the General Agreement on Tariffs and Trade in 1994, endorses the idea of liberalizing trade free from disputes.
But the trends of international trade and globalization endangered, particularly in the U.S, when Mr. Trump declared trade war with China with a claim that the influx of imports from China and other countries are making the population the redundant, thus posing threat to the U.S’ economy. For this reason, Trump has imposed heavy tariffs on the Chinese exports to the U.S. To say Trump’s is endorsing the very idea of mercantilism to which Adam Smith staunchly opposed. Enacting tariffs, primarily on manufactured goods, is the universal hallmark of mercantilism policy.
However, China is not only the country which has been affected by the tariffs; Europe, Mexico, and Canada as well, join the company of China in the trade war. The U.S has ignited the war by imposing tariffs on the steel and other imports coming from the countries mentioned above.
On the other hand retaliation from the side of China was also immediate. China slapped a tariff on the U.S exports to China like soybeans, planes, cars, and jeans etc. In the same vein, Canada seems unwilling to be bullied; it has retaliated with a 25% tariff on $12 billion of the U.S goods. Another feature that mercantilism exhibits, is the immigration since foreigners consume the jobs of indigenous people. Thus, Mr. Trump has promised to build a wall with the Mexican border to halt infiltration of people.
Trump since his election campaign had been the flag-bearer of reducing international trade. From the very beginning when he took the reins of the U.S, he seemed to be cursing the other nations by blaming them that they are liable for leaving many American people redundant. And in his recent speech, while being at the dais of the UNGA, he condemned the ideology of globalization. He accused China many times that the latter has created the imbalance in the trade with the influx of its imports to the U.S.
As of 2017, the trade deficit of the U.S with China was $315 billion. Trump has accused China of this budget deficit by taking on the twitter: “Tariffs are working big time. Every country on earth wants to take wealth out of the U.S, always to our detriment. I say, as they come, tax them. He also added: “If they don’t want to be taxed, let them make or build the product in the U.S. In either event, it means jobs and great wealth.
The course of history is witness to the fact that the trade wars have not achieved their desired results. Amidst days of the Great Depression, mercantilism policy adopted by the Congress of the U.S in the form of Smoot-Hawley Act deepened the effects of the Great Depression. Likewise, between 2002 and 2005 the U.S’ president George W. Bush imposed tariffs on the steel resulted in inflation, loss of 200,000 jobs and fall in the economy.
And right now the outmoded economic policy namely mercantilism that supported the regulation of imports in the past, has taken the flat coat. At this age of globalization when countries have interconnected links in trade, the concept of mercantilism seems peg in the square table. However, Trump with his pro-tariff policies to halt the surge in the U.S imports has substantiated his mercantilist approach.
Different camps of economists have their different opinions regarding contemporary trade war, yet it would be earlier to predict the consequences of this step that where it would lead the trading system of the world, which Donald Trump has initiated.
