Anjum Ibrahim
The advent of Donald Trump on the international scene has changed much in the way the world perceives the United States with one fundamental change in the definition of desirable global trade relations: from ‘free’ to ‘fair’ trade and linking this shift to his domestic political battle cry of ‘America first.’
Foreign trade defined as the sum total of exports of goods and services and imports of goods and services is an extremely important element in advanced as well as developing countries’ economies as it accounts for a significant portion of their Gross Domestic Product (GDP). The World Bank as well as OECD national accounts data reveals that in 1960 total world trade as a percentage of world GDP was 24 percent; it peaked at 60.8 percent in 2008, plummeting to 52 percent in 2009, and rising to 57.9 percent in 2015. By 2016 it came down to 56.4 percent but still accounting for over half of the world’s GDP. For the United States trade as a percentage of its GDP was 9 percent in 1960 and rose to 27 percent by 2016, UK was 42 percent in 1960 and 59 percent in 2016 while China had trade accounting for 9 percent of its GDP in 1960 which rose to 37 percent by 2016. By 2016 Germany had 84 percent of its GDP sourced to trade and France 60 percent. With respect to regional countries India is listed as having trade account for 11 percent of its GDP in 1960 and 40 percent by 2016. Pakistan is not rated for 1960 but 25 percent of GDP is attributed to trade in 2016 while Bangladesh had a much higher figure of 38 percent in 2016.
The data reveals that while America’s vulnerability to a trade war is considerably less than that of its European partners and China yet in the event of retaliatory measures on US exports those industries/crops that would be hit would no doubt exert pressure on the Trump administration to take appropriate mitigating measures; and if the affected industry/crop is located in a Republican constituency the future political interests of the party may be at stake. An example is sorghum, used for livestock feed, with China importing a billion dollars worth of the commodity from the US. China’s response to tariffs on steel (25 percent) and aluminium (10 percent) was to threaten 25 percent tariff on sorghum, mainly grown in the red states of Kansas and Texas, with serious political implications on the republicans performance in mid-term elections scheduled for November this year. At the same time China complained to the World Trade Organization on 10 April accusing Trump of violating its rules but requested 60 days of consultations with the United States on the steel and aluminum dispute. These consultations have so far not proved fruitful and if this continues the next step could be for Beijing to request a ruling from a panel of trade experts.
Trump granted allies Canada, European Union and Mexico (the other top three countries from where the US imports steel and aluminum) temporary exemption from the levy which has ended prompting them to threaten retaliatory measures. The G-7 summit in Canada ended without a resolution between the divergent US and the European Union/Canada narrative. And reports indicate that Trump’s data did not match that presented by the Europeans.
Trade is important as it constitutes a major chunk of a country’s Gross Domestic Product (GDP). According to International Monetary Fund World Economic Outlook 6 May 2018 gross world product is projected at 87.51 trillion dollars for 2018 and its GDP Purchasing Power Parity (measured by finding values of a basket of consumer goods) at $134.98 trillion – the latter 1.54 times greater than the former.
Thus even with 27 percent of US trade contributing to its GDP (in 2016 terms) the amount is more than 5.5 trillion dollars – a sizeable amount. China with its very large trade surplus relies to the tune of 37 percent on trade to contribute to its GDP or in actual terms, the figure is around 5.2 trillion dollars. Germany relies heavily on the sale of cars on which Trump is threatening to impose a tariff.
Total US trade deficit in 2017 was 566 billion dollars with exports estimated at 2.895 trillion dollars and imports at 2.329 trillion dollars. The primary source of the trade deficit was with China (total trade between the two 636 billion dollars), followed by Canada (582 billion dollars) and then Mexico (557 billion dollars). Imports of consumer products (602 billion dollars in 2017), automobiles and spare parts (359 billion dollars in 2017) are regarded as the major drivers of US trade deficit.
The ability to purchase (imports) rather than the ability to sell (exports), though accumulation of foreign exchange reserves due to trade surplus provide a cushion for the economy, is a major determinant of economic clout that is translated into a greater say in international relations as well as regional politics in areas of interest. Thus the capacity of the US to absorb such a large quantity (value) of imports accounts for its considerable economic clout in the world arena and together with its military might has enabled it to successfully play the lead role in global affairs.
The Trump administration has also angered its key allies by taking decisions that are at odds with past US policy as well as its allies. Trump pulled the US out of the Iran nuclear agreement (Joint Comprehensive Plan of Action), Paris climate agreement, UNESCO and Global Compact on Migration, reducing funding to the United Nations, threatening NATO and paralyzing G7. These including demanding fair trade are recipes for the US to become isolated (which clearly does not faze the President) but in time may begin to impact on the considerable international clout that the US has enjoyed since post world war II – clout that was clearly in evidence in creating major ripples within the international community alternating between befriending him and trying to convince him to lately trying to go it alone (an example being the EU with respect to the Iran deal) and threatening retaliatory measures with respect to the trade war. However deliberations are still ongoing and efforts to convince him have not yet been abandoned as world leaders tread with caution and hope that such policies would be limited to a one tenure Trump presidency.
Additionally, the US placed its Arab partners in a compromising position with their populace, by vetoing the UN Security Council resolution reaffirming Jerusalem’s status as unresolved following the US recognition of the city as Israel’s capital; more recently the US vetoed a Kuwait sponsored draft resolution at the UNSC which deplored the Israeli killing of over 100 stone throwing protesters calling for a stop to “excessive, disproportionate and indiscriminate force” by Israeli forces against Palestinian civilians. Ten countries backed the resolution however four abstained including Britain (one would assume after the Brexit, Theresa May is still hopeful of a special trade deal with the US), Ethiopia, Poland and the Netherlands. A counter resolution put up by the US condemning Hamas for the recent violence in the Gaza Strip was not supported by any other UNSC member.
To conclude, if the Trump administration shows little flexibility in matters pertaining to global economic and political interests and sustains this approach then it would compromise its ability to play a major role in international affairs in the long run.
