Current topics explained by RUG experts
Trump's trade war
professor of economy
‘We have calculated the potential effects of a trade war, based on numbers from all over the world. Especially the US itself will take a huge hit. If they raise their tariffs by 30 percent, the US will suffer a trading loss of approximately 20 percent, while other countries will be less severely affected.
Take the Netherlands, for example: 70 to 80 percent of our international trade is done with the rest of Europe. Germany is a much more important trade partner for us. But for countries like Canada, the US is a very large sales market, and a conflict would adversely affect them. Thousands of people would lose their jobs.
Trade wars are curious things. Trump is currently trying to block import. He’s basically throwing rocks into the New York harbour to make it harder for businesses to import their stock. That’s not very smart: he’s only making products more expensive for American consumers. But Europe and countries like China and Russia are responding by throwing rocks into their own harbours, negatively impacting their own consumers well. It’s a completely irrational process, this trade war.
This situation calls for an ingenious solution, but that’s easier said than done. When it comes to someone like Donald Trump, I feel like we should tell him he’s right, that he has a point. Generally speaking the tariffs are low, but there are a few that are still really high. One example is the cars that America exports to Europe. They come with a 10 percent tariff. And Canada levies 200 to 300 percent on American dairy products.
That is definitely a case of protectionism. We could suggest doing something about those tariffs to Trump. We’d be offering him an elegant exit strategy, allowing him to boast about what he accomplished.’
‘According to the rules set down by the World Trade Organisation, every country is allowed to temporarily raise import tariffs. But they need to have a good reason, like an epidemic, a serious threat to public health, or an attempt to solve fundamental economical issues. Developing countries use the last reason in particular.
The United States is calling it a matter of national security, saying that America is becoming independent for steel and aluminium upon countries that they might get into military conflicts with in the future. Experts are saying this is a ridiculous argument. The steel industry in the US is extremely efficient. It’s been that way since Bush junior was president. He, too, took measures to protect it. But Europe had this overturned by the WTO.
And Trump has failed to mention that the US is levying some pretty steep tariffs itself. In 2017, it had a 350 percent tariff on tobacco, up to approximately 160 percent on certain types of nuts, dates, pineapples, avocados, guavas, and mangoes, approximately 50 percent on waterproof footwear and various types of clothing, 40 percent on glassware, etc.
Politically speaking, it makes total sense that some countries want to protect their own industry in certain sectors. Asian countries like Japan and South Korea are really protective of their rice sector, for example. They want to prevent importing rice from a possible enemy.’
‘The last time tariffs were this high was the interbellum, especially after the Great Depression of 1929. Countries were getting very protectionist, and the import tariffs were raised even more than they are now. World trade practically came to a standstill. But even in the nineteenth century some countries, including Germany, became protectionist, guarding their agricultural interests. They also wanted to protect their own industrialisation from the fierce British competition. Almost no developed countries were able to prevent these measures.
But the 1930s are the best comparison, because the tariffs that Trump is introducing aren’t meant to protect a new industry, but an old one: steel and aluminium. It appears that he’s trying to further his own economy at the expense of others. It’s a typical reaction for countries going through an economical crisis.
After the economic crash of 2008, everyone was worried about another protectionist war like after the Great Depression, but in the end people were optimistic that we’d learned from our past mistakes. Because when world trade declines, everyone loses. Trump seems to have put an end to that consensus, however.
After the Second World War, we wanted to liberate world trade and put an end to trade barriers. After the war, Europe experienced its greatest economic growth in its entire history. The years between 1945 and 1975 are referred to as the golden age. Countries like the Netherlands, Germany, France, and Italy grew really fast. The consensus is that this was due in part to the barriers between countries disappearing. It allowed countries to invest, develop their own export industries, and innovate – it created a vicious cycle.’