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Trade wars are never won, can we avert one now?

By Alan Barrell | China Daily | Updated: 2018-03-31 10:48

History tells us that those starting trade wars never win. Trade wars have mostly resulted in losses all round. The dictionary describes a trade war as "an economic conflict in which countries impose import restrictions on each other in order to harm each other's trade".

But US President Donald Trump recently said: "Trade wars are easy to win." History tells a different story and also shows how a trade war between two main protagonists such as the United States and China can quickly become "a world war" by having impacts in numbers of ways on many other parts of the globe.

The World Trade Organization's job is to encourage free trade between countries. Can it act as a firm enough arbiter to prevent a trade war? It might be our only hope.

The reasons for Trump's actions in seeking to start a trade war, essentially with China, run deeper than the rationale offered by the US that its economy and its huge trade deficit are caused by China's "unfair trade practices and Chinese theft of US intellectual property". China is already the world's largest trading nation and on way to becoming the largest economy as it takes a lead in key areas of innovation, such as artificial intelligence, machine learning, robotics and financial technology/big data, and digital technology developments in general.

The US has for so long been "top dog" in size, scale and success, that being overtaken by a country with a visionary leadership, a clear strategy for international development and a strong sense of purpose is very hard for it to contemplate. The reasons for the US' trade deficit relate more to its own domestic policies and relative loss of competitiveness than to misplaced policies of other countries.

In-depth analysis of the results of the US carrying out its threatened attacks by imposing tariffs on China that lead to retaliation - which seems uncomfortably likely - shows they are more likely to harm the US economy and its consumers than its chosen adversary. When such actions were last taken, US jobs were lost in large numbers and the industries selected for protection declined faster. US consumer prices could rise again and key US exporting industries, notably agriculture, could suffer through lost business in China. And the resultant negative impact on world economic growth would not be good news for anyone. 

The initial downward movements in the world's stock markets show what a nervous atmosphere prevails. Europe and the United Kingdom have reacted with expressions of alarm, and a war of words has begun between the US and its Western allies. The most serious impact might however be on other Asian markets - there are clear signs already of investors positioning to counteract negative effects there.

If anywhere in the world, especially in WTO member countries, bad practices are suspected, provisions exist for enforcement of clearly stated rules. Both China and the US are WTO members and this might still be the channel through which a damaging trade war could be averted.

China's response to the first shots fired by the US in what could lead to a devastating trade war has so far been measured. The reasoning world knows that economies and indeed the security of nations are enhanced by free trade between allies.

It seems China at this moment is following the advice of Sun Tzu: "To subdue the enemy without fighting is the supreme art of war." The rest of the world, notably Europe including the United Kingdom with or without Brexit, is holding its breath in the hope that peace and reconciliation may prevail beyond the rhetoric and emotion.

And for those of us who spend large slices of our lives working to build bridges of trust between the UK, the West and China, and making meaningful and practical trade agreements, our fingers are crossed that the good work can continue uninterrupted by war of any kind.

The author is entrepreneur in residence at Judge Business School of the University of Cambridge.

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