Dr. Rebecca Harding  

Just as trade talks between Washington and Beijing appear to be reaching a form of resolution, the potential for a new front in the global trade war to open between the US and the EU looks more likely. On Monday 15th April, the EU will approve the re-commencement of trade talks with the US. This is against a backdrop of threats from President Trump that $11bn of tariffs will be imposed on European helicopters, and cheese, in the wake of the WTOs ruling that EU subsidies of Airbus were illegal. The suggestion of tariffs on cheese is probably likely to be Trump’s pitch to his domestic agriculture business which is important in all US negotiating positions.

Trade Weaponisation has been a “thing” in global trade for some time now: the rhetoric around trade and trade and industrial policy is increasingly belligerent. When Angela Merkel starts talking about “Strategic Competition” in the context of the rising power of Asia, it is clear that something profound has shifted in the way we talk about trade.

But if this is the case, then trade has to be seen as a national strategic goal with a national security aim and clear negotiating objectives. The use of “weapons” like Export Credit Agencies (ECA), or government support for sectors that are in the “national interest” becomes mainstream. It is no longer adequate simply to have a policy that focuses on export-led growth with a few micro-level tweaks to the access to finance system for exporters. Rather, trade policy and national security policy are inter-twined creating an imperative to have a consistent and over-arching vision of the role trade plays in that context.

For the US, it is clear that trade is a national security issue. At the US EXIM bank at the end of March, Larry Kudlow, Donald Trump’s senior economic advisor said to the bank attendees, “You are a financial tool, and a national security weapon.” In other words, without the support of the ECA, US businesses and America Inc would lose out in the export-led arms race, literally because it undermines security with fewer defence contracts and figuratively it undermines security because US businesses would seek support from non-US ECAs in order to drive their overseas business.

Peter Navarro, author of “Death by China” and senior trade advisor to Donald Trump, also spoke at the event in a similar way. For him, the question was, “in a war that we are already losing [with China], why would we deliberately disarm?” The result for the US is a remarkably consistent trade strategy linked to its national security strategy with a strong focus on America First and with China identified as the “enemy” in this context. The US Trade Representative (USTR), has a near-identical negotiating stance towards all trade negotiations: to rebalance trade and trade rules in favour of the US, to promote US manufacturing and agriculture, to ensure national security in defence, cyber and intellectual property terms, and to ensure that the terms of any trade agreement are rigorously enforceable by the US.

It is noteworthy, therefore, that the negotiations with China are being resolved because the enforcement criteria have been made bilateral. China has an equal but opposite strategic approach to its trade: its ECA, SinoSure, has historically supported only Chinese companies but is now moving out to support global businesses too. This has an impact on the US businesses and banks operating in Asia of course, particularly as those businesses scramble to be integrated into the Belt and Road Initiative (BRI), which embodies the Chinese strategic approach to trade. The BRI is seen by public and private sector participants alike as an expansion of existing strategies with global banks and businesses arguing at the recent ICC Banking Commission centenary event, that it is simply an extension of what has been going on for many years.

So China’s negotiating position towards the US is equally strategic: enforcement has to be bilateral. US business is integrated into the BRI, and it is in everyone’s interest if this is done multilaterally. If the US imposes tariffs, or breaks the terms of any agreement, it is neither fair on China, nor on the global businesses that operate within its orbit. Enforcement must equally be the domain of China as of the US.

As always, the trade spat with the EU is starting off with a degree of bluster and belligerence that suggests, if anything, a lack of strategy and forward thinking on the part of the US, as well as the French; the response from the rest of Europe is reactive rather than proactive.

We can learn something very profound from the likely outcome of the negotiations between the US and China, quite apart from the fact that they have taken a lot longer than expected. It has always been the case that triggering a global trade war was the economic equivalent of pushing the nuclear button. What appears to have emerged from the negotiations between the two countries is similarly the equivalent of an arms limitation treaty where neither side can move.

 

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