As more and more governments adapt protectionism as their economic model at the era of slowdown in the international markets, global economy is being held to a test of endurance.
Early hours of the Wednesday on 11/9/2016 marked in US history, one of the greatest tragedies for the US Constitution. Moreover, with the new barriers rising against free trade as WTO report tells that its members had put 2,100 new restrictions since 2008 and Britain’s exit from European Union, soon to be followed by US, as Trump administration’s promises to go head first into the global trend and the tragedy would also spill towards the economy.
“I would tax the China on products coming in, I would do a tariff yes, and the tax, let me tell you what tax should be … tax should be 45 percent” Mr. Trump said to the New York Times. As one of the few points of his campaign Mr. Trump held China accountable for the rising number of companies which preferring to open their factories in China instead of within US.
Mr. Trump’s plan of raising the tax and putting tariffs is not something new. As a product of common misconception leads people and leaders to believe that; their economy will do better as they trade less with the others. In 1930 President Hoover signed Smoot-Hawley Tariff Act, to reassure his seat in the period of financial crisis, with the premise of fixing the economy by increasing the dutiable tariff levels. However in reaction global trading partners retaliated as one would expect and global trade fell sharply damaging the US economy even more.
CASE OF SOLAR PANELS
- In 2012 Department of Commerce under Obama administration, issued “Anti-Dumping Duties”. Mainly affecting Chinese solar panel producers with high dumping margins.
- In response Chinese government issued 57% duty including the off-shore plants on Polycrystalline Silicon, a raw material used in solar panel cells.
- Chinese retaliation caused Hemlock Semiconductor (the largest producer of polysilicon in the United States) to abandon their $1.5 Billion worth construction of their new production plant.
- As a result of the regulations on both sides; 1-) the breaks has been put on fast growing Chinese solar industry 2-) uncertainty on the future of the industry due to high solar module costs many investors back up from future plans.
However, what Mr. Trump was missing is China’s role in the global economy is changing as the country’s maturing industry increasingly making its own parts and consumes more of what it produces and yet todays China is the third largest export market of the US. Even with the 6.1% decline from the previous year, in 2015, overall exports to China summed up to $116 billion. In terms of imports, in 2015, Chinese imports reached up to $482 billion, which makes China the largest supplier of imported goods in US. In terms of twenty equivalent units. In 2014, US imported 19.6 million TEUs with twenty percent of this total being Chinese imports, a number equals roughly up to 3.9 million TEUs. A highly-vulnerable sum against any kind of retaliation to Trump administration’s trade policies.
As shipbroker Banchero Costa analyzed last week in their weekly report; “With protectionism central to Trump’s political identity, such measures, if introduced, could be another sharp blow to the shipping industry, especially with the World Trade Organization forecasting global trade to grow at its slowest pace of 1.7% this year. There are also concerns that protectionist policies adopted by the U.S. could create a ripple effect, with other major trading partners such as China doing the same, thus negatively impacting shipping trade over time.”
A possible trade war with China will leave both sides with casualties in terms of national and multinational corporations, wasted investments and disrupted supply chains. As it has been proved multiple times, putting barriers with the hope of extra revenue, on international trade will bring nothing but short term gains and long term crippling effects.