Mr. Trump may be making more noise than his predecessor, but make no mistake, the Obama administration is the one that has quietly been changing the course of US commerce and trade since quite some time now. With a significant slowdown in global growth, the trade protectionism trend in the US has been on a rise, according to the latest Global Trade Alert launched by the Centre for Economic Policy Research. As the world’s largest economy, the US has taken more than 600 protectionist measures since 2008, including 90 protectionist measures in last year alone, the most in the world. Going forward, this change is likely to be even more dramatic. During Trump’s presidency and under the stewardship of Peter Navarro, the man chosen by Donald Trump to lead a new presidential office for USA trade and industrial policy, China and perhaps the Far Eastern tigers (Vietnam, Taiwan, Malaysia, Japan, Indonesia) are going to be the new villains of trade. Navarro is a hardliner against China in particular and the US trade equation with the ASEAN in general. With him in the saddle one can almost certainly say goodbye to the TPP (Trans Pacific Pact) and expect tariffs to be raised for historically some of the most free-flowing imports into the US. Now some will argue that this approach may not be very healthy for global trade per se, but here in Pakistan from an inward perspective it in fact provides us with an opportunity to enhance our market share in the US. Amidst all the hype of duty free access granted by the European Union to Pakistani textile and other goods, we sometimes tend to forget that the US also allows more or less similar preferential access to Pakistani textiles in its markets and thankfully Mr. Trump has shown no intentions of cancelling it. Today the US, as a single country, is still our largest export market and with TPP shredded, Pakistani exporters can heave a sigh of relief, as its implementation would have put them at a huge disadvantage against competition from Vietnam. The trouble though is that other than just fearing Mr. Trump’s election time rhetoric, we are doing nothing to prepare ourselves to strategise on what is going to be the new normal in the US Trade going forward.
What the US itself needs to be careful on is that Navarro’s extremist views can carry serious implications for its economic prospects. He is known to air some harsh anti-China sentiments in recent times: “The Chinese government is a despicable, parasitic, brutal, callous, amoral, ruthless and totally totalitarian regime that reigns over the world’s leading cancer factory, its most prolific propaganda mill and the biggest police state and prison on the face of the earth.” He has also written a number of extremely anti-China books including “Death by China” and “Crouching Tiger: What China’s Militarism Means for the World”. The Harvard educated hardliner accuses “a cheating China” responsible for destroying both American factories and lives by flooding the USA with illegally subsidised and “contaminated, defective and cancerous” exports.
In a 2012 film documentary based on the book Death by China, Navarro blames Beijing for the loss of 57,000 American Industrial manufacturing plants and 25 Million American workers jobs. “Help defend America and protect your family - don’t buy made in China,” he tells viewers in an introduction to the 80 minute film, which is narrated by Martin Sheen. Navarro, who has also dubbed China a “global pollution factory” and “disease incubator”, made no secret of his distaste for its rulers during Trump’s election campaign. So where will all this lead to if in the coming days he tries to now put his actions where his mouth has been? Given the rebound of oil prices and a full employment the U.S. enjoys, the inflation in the US is likely to increase steadily in the coming days. Most of U.S. inflation indicators have been at or above the average level in 20 years. One of the key drivers for CPI increases is the base effect caused by increasing oil prices. Couple this with rising interest rates in the US in-turn leading to a stronger US Dollar and what you have is a recipe that is its own worst enemy. A stronger US Dollar will nullify any short-term advantage that may have been gained by US manufacturers through protectionist policies or straight tariff increases being proposed by the Trump administration. In the process leaving the US consumers to bear the brunt of resultant inflation. What Mr. Trump and his team need to understand is that shoring up manufacturing is a slow long-term process and entails a holistic approach. More importantly, it is about striking the right equilibrium between strengthening domestic manufacturing versus consumers’ interests. And for this reason alone, U.S. will be better off choosing to partner and not fight China in managing its goals on bilateral trade with China.
Like it or not, China is the new economic global power. Moreover, it is a responsible superpower, which in a very turbulent period for global trade is talking about inclusiveness instead of isolation or protectionism. Over the past 15 years, China has made great contributions to the WTO’s multilateral trading system as well as to global economic growth. According to WTO Deputy Director General David Shark, since its WTO accession, China has significantly increased national income, made great progress in poverty relief, influenced economic growth in many regions, and made vital contributions to raise incomes and living standards globally. Any country desirous of making sustainable economic gains today must constructively engage China. Despite the weak global economic recovery (post 2008) and flagging growth of global trade and investment, China has seen a steady growth of foreign investment. The Chinese economy has maintained a stable economic growth, upgraded the structure of industry, promoted transformation and upgrading of consumption and enhanced investment environment. Its new “one belt-one road” vision is about uniting more than 65 countries to seek common progress by reinforcing coordination and collaboration in security areas, pursuing interconnected development, advancing common production capacities, exploring cooperation on innovation, improving regional financing mechanisms and solidifying the foundation of ties by promoting cultural and people-to-people exchanges. Election time in the U.S. is over and now it is time to do business in the real world, for which Mr. Trump and Mr. Navarro will be well advised to take a leaf out of the Chinese book on approach to trade!