Trump goes ahead with plan to undo globalization; targets China and EU

The American President Donald Trump delivered a speech about US-China economic relations. He said he aims at stopping “China’s predatory attacks on America’s innovation base”. To this effect he is “instituting a program of tariffs and is considering investment restrictions and strengthened export controls”. Surely, the White House works for a world without free trade. (Snapshot from a White House video, June 25, 2018).

Harley-Davidson motor cycles is the first American iconic company to suffer in more than one way from Trump’s action aimed at reversing the world economic order. It’s a matter of fact by now that the ‘America first’ President seems decided to overturn globalization.

In doing so, apart from causing global disorder, he will embarrass a large part of the American productive machine, while favoring another. Trump’s import tariffs on steel and aluminum have raised the prices of both metals at home, and for one thing have hiked the production costs of motorcycles.

Tariffs, tariffs, tariffs…

At the same time, European Union’s retaliation in response to Trump’s tariffs, punished the imports of US bikes in Europe with extra levies. Overall, the prices of Harley-Davidson in the EU have to be increased by around 30%.

To avoid that, the company plans to shift production outside the US, to evade the European tariffs of 25% and find supplies of cheaper steel and aluminum. Obviously, the White House doesn’t mind the problems of Harley-Davidson as long as the American steel and aluminum producers are happy.

New round of tariffs

Now, Trump threatens Europeans with a second round of import tariff hikes, this time on cars assembled in Europe and sold in the US. While trade over the Atlantic Ocean sails in rough seas, it’s even worse in the usually calm Pacific Ocean. The US started the Pacific trade war by punishing with super import levies Chinese steel and aluminum. Beijing responded quite moderately with extra imports levies on US products worth just $3bn. Yet, Washington answered with tariffs on Chinese goods of a value of $50bn.

Trump won’t let the exchange to end there though. He plans a terrifying new round of tariffs hikes on Chinese products of a value of no less than $450bn. To be noted, the United States last year imported from China goods of a total value of $506bn. If the White House realizes its threats the US will punish almost all imports from China. The first tranche of import levies will be imposed next month on Chinese goods worth $34bn.

Beijing’s response

In view of that, Beijing left it to be understood that its new reaction to the American aggression won’t be moderate and will not contain only extra tariffs, but other non-tariff trade barriers too. According to Wall Street Journal report Xi Jinping, the Chinese President “told a group of 20 mostly American and European multinational chief executives on Thursday that Beijing plans to strike back”.

According to the same source, this time the Chinese action will be “with a bare-knuckle approach”. This means the US products will face not only increased tariffs, but also non-tariff barriers related to regulative rules and controls. This last threat may create much more important problems to US exports to China, surpassing trade issues and touching the financial and banking sectors.

Furious Xi

If the Chinese response will be as harsh as Xi said, it may constitute a landmark towards an overturn of globalization. It depends on Beijing’s calculations about the cost of losing some good parts of the US markets and relying more on home and Asian demand for growth. This is also more or less the case for transatlantic trade. In reality, all the major trading powers of the world are currently reflecting about their position in a totally different landscape of international trade.

Trump, though, is not only aiming at destroying what is left of globalization. He wants to force American capitalism to stop producing in low labor cost countries and then selling to the US to make huge profits. In this policy line, he mounted an aggressive response to Harley-Davidson’s plan to move production outside the US. In a tweet, the US President reprimanded the motorbike maker and threatened it with more taxes, if they move production outside the US.

Targeting Harley-Davidson

He said “A Harley-Davidson should never be built in another country-never! Their employees and customers are already very angry at them…If they move, watch, it will be the beginning of the end – they surrendered, they quit! The Aura will be gone and they will be taxed like never before!” It’s not clear what kind of taxation he has in mind. At this point it must be reminded that this is not the first time Trump attacks a major American company, for not acting in line with the ‘interests of the nation’. He has repeatedly assaulted Amazon for allegedly making super profits on a cooperation agreement with the US Posts.

This is the first time an American president is loudly reprimanding prime US business names, shining stars of the capitalist system. In the same line of thinking, the White House aims at practically jamming all imports from China, while a large part of which is produced there by US firms. This arrangement has so far secured huge profits to giant or even medium and small US business; producing in low cost China and selling the products in the US at American prices while paying just nominal tariffs.

Exiting globalization

This is what Trump now wants to change, and it’s a major, dangerous and possibly calamitous transformation of the global economic system. There is strong opposition to that also within the US politico-economic constellation. The powerful, super rich, extreme right-wing and Tea Parties supporters Koch Brothers are already spending millions fighting Trump’s trade wars with negative advertisement.

The ‘America first’ President though has made sure he has secured the support of other powerful centers. His catastrophic Middle East policy, where he ostracized Iran and moved the US embassy to Eastern Jerusalem is certainly designed to make good and very close friends in Tel Aviv and Riyadh. Both those cities have a strong leverage in the American politico-economic universe. In this direction, the White House went as far as to threaten Iran with a military invasion – as the US did in Iraq and Libya with catastrophic results- if Tehran doesn’t ‘comply’ with the American dictums.

If one puts all that together the overall picture speaks of a different world in the making, much more dangerous and full of incompatible ‘nationalisms’. Of course, America is supposed to prevail, but whoever the winner of the process is, will be belligerent and destructive for hundreds of millions of people.

 

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