Saad Masood
The latest G7 summit that concluded on the 9th of June 2018 resulted in bitter acrimony between the US and its allies. Generally, diplomacy obfuscates or at least plays down the fissures between different parties but if the pictures of western leaders congregating around Donald Trump are anything to go by, it was a divisive meeting at best. Generally, the G7 summit is a docile affair known for eloquent speeches without concrete actions. What changed this time around? Donald Trump – the joker in the pack!
There are Republican presidents, then there are Republican presidents and then there is Donald Trump! Consider.
Trump’s protectionism pledges include pulling out of the Kyoto treaty, opposing trade deals such as North American Free Trade Agreement (NAFTA), barring Muslims from the US, erecting a wall with Mexico and revoking the Trans-Pacific Partnership (TPP). This list is so inappropriate for the globalised world that none of the prior right-leaning presidents, Republicans and Democrats alike, included any such promises as part of their campaign. Almost all strategies pursued by the Trump white house seem to stem from this overarching policy of protectionism. And, we know from initial opinion pieces in this series that policy is guidance that is directive or instructive; i.e. it is clear in stating what is to be accomplished. It is a galvanizing vision that describes the end goal. However, in this case, Trumps protectionist policy is completely detached from his campaign slogan of ‘America First’. In the era of hyper globalisation, this protectionist policy will undermine the one thing the administration is trying to achieve; i.e. bringing prosperity back to the US by putting ‘America First’.
The Trump histrionics at the G7 summit were a component of this self-harming protectionist policy which is defined as an economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. The US hypocrisy was plain to see – promoting a tariff free world while imposing 25% tariff for steel and 10% for aluminium on imports from the EU, Canada, and Mexico. On a personal level, Trump called Justin Trudeau meek, mild, dishonest, and weak and suggested further tariffs will be imposed in other manufacturing sectors as well. No wonder the G7 leaders were outraged against the American administration.
Advocates of protectionism such as Trump base their case mainly on two premises. One, that high-wage countries like the United States cannot compete with low-wage countries. In the era of internationalism this notion doesn’t stick because restricting imports produces a huge burden on the local consumer. This leads to lesser consumer spending, stagnating the very local industry that was to be helped and thus tanking the economy at some stage. Two, the unlevel playing field argument. This suggests that while the US plays by the rule of the free market, others support targeted industries with trade protection, subsidies and selective procurement. This also doesn’t wash considering that there are many trade free agreements that world leaders around the world have established that, incidentally, the US is planning to exit one by one.
A quick glance over historic policy directives suggests that protectionism hasn’t fared well at all and at any juncture. Consider the McKinley Tariff. Named after the future Republican president, it was made into law in 1890. The objective? Raise the average duty on all imports from 38% to 49.5% in an attempt to protect agricultural and other producers. The result? Increased consumer costs on everyday goods such as food, clothing and cutlery and plates. The direction of trade moved away from the US and towards other countries. For example, Canadian agricultural exports to the U.S. decreased by half, but quadrupled to England. In the US, per capita GDP decreased by more than 2%, while unemployment tripled!
The Smoot-Hawley Tariff of the 1930s was aimed at protecting U.S. agriculture from foreign competition in the heart of the Great Depression. Enacted in 1930, this law raised the average tariff to over 59% in 1932. This tariff had no support from the icons of the time including Henry Ford and there were wide spread calls to end this controversial approach. In reciprocity, almost 23 countries complained and threatened wide ranging tariffs. In this period, American exports declined from about $5.2 billion to $1.7 billion and US GDP declined by nearly 40% and in the following years, the unemployment rate nearly tripled. History records that while it didn’t cause the Great Depression, the Smoot-Hawley tariff certainly exacerbated it.
The Trump administration must reconsider their policy options! They need not go any further than glancing through the history of protectionism policies in their own country.
