The looming trade wars

I brought the issue to up during the final days of January. Since the day the trade squabbles escalated, the process is going on in an unsurprising way, strictly speaking. Such that, U.S. President Trump recently took the issue one step further and announced that he would draw a protective shield over steel and aluminum. It is understood from his expressions that he will introduce a tariff of 25 percent to all steel and 10 percent to all aluminum imports, and it is clear that he won’t hesitate from pulling the trigger on trade wars. Such that, again in this context, within the dynamics of the American economy, he has made statements such as “trade wars are good and easy to win.”

Now from the perspective of the U.S., Trump’s sensitivity regarding these two sectors is, in a sense, understandable. Because the whole world knows that there is a global overcapacity thanks to the policies carried out by China for years. In fact, at this point, we can easily remember that an integrated stance was maintained against the extravagance of China’s production within the G20 in the recent years.

However, we are face to face with a situation where such a move of Trump does not specially target China, but will rather affect its other close partners, considering the fact that China is relatively at the bottom of the list of countries exporting steel to the U.S. On the contrary, Canada, one of its closest allies, is at the top of the list of steel trade, followed by partners such as Brazil, Mexico, and South Korea. It is also necessary to state that Turkey is among the top among the countries exporting steel to the U.S. Therefore, while the sectorial problem that should be focused on originated from China, Trump’s step creates sourness in terms of both fairness and mutual relations.

Another aspect of the issue that is being discussed is that Trump is fixating the trigger he’s planning to pull on trade to “national security” reasons. As a matter of fact, the exceptional case that is specified in Section 232 within the scope of the Trade Expansion Act, which entered into force in Kennedy era with a drive of motivating the international trade, gives such an opportunity. What does that section say? It says that the U.S. Secretary of Commerce is authorized to investigate the effects created by the imports of any product, in detail.

Recollecting this authorization, which has been exercised only 14 times and has been shelved for long years, the Secretary of Commerce in Trump’s government has determined the harms of the import of steel and aluminum, not only on the economy of the country but also on its national security. While U.S. Secretary of Commerce Wilbur Ross, who comes directly from the steel sector, says that there is no need to worry about side effects such as the prices, it is the president who has the final say, which he can put into play at any time.

In this context, while minds are quite confused with what kind of a threat the imports of steel and aluminum can ever pose to national security, I think that it is not that difficult to put a cover over the issue.

Because in the above-mentioned provision, various economic motives such as employment for the domestic industry and income are ranked among the national security reasons. Besides, the World Trade Organization (WTO) presents flexibilities allowing the walls to rise when it comes to national security and it may not observe a standard definition.

This being the case, the U.S. using national security as a pretext in trade, may bring about the risk that other countries will also start to make use of this argument, which has been rarely used, in addition to escalating conflicts. Furthermore, at this stage, retaliatory squabbles are already increasingly continuing. On the one hand China continues its endeavors, and on the other, the European Union, which is not indifferent to Trump’s steel and aluminum steps, has stated that it is considering retaliatory tariffs, targeting U.S. products in the case that such a possibility comes true. What’s worse is that Trump is also thinking of another attack targeting Europe’s automotive sector. For many countries, the retaliatory situation may also include moves toward protecting their own markets for the same products.

Of course, relevant shares in the U.S. market and the degree that such a move will affect countries will be different for each one of them. That being said, the biggest risk posed by the escalating developments is that the world is about to enter into a spiral of protectionism. To make a long story short, with the way things are going, as it is trying to ensure its national security, the U.S. may pull the world into a trade war, in which it will be the first to be targeted.

However, trade wars, contrary to what is being claimed, are neither good nor easy.