Trade tensions have escalated beyond mere threats; we are now in the midst of an actual trade war. As unsettling as the prevailing news might be, it’s important to remember that disputes over trade are not a contemporary phenomenon. Both the 20th and 21st centuries have witnessed a considerable amount of conflict concerning tariffs and repeated alerts of potential trade wars. Studying this historical context allows us to better understand and navigate the stormy seas of today’s trade struggles.
While insights from the past might not comfort those grappling with the consequences of the current trade upheaval, ranging from job loss to the rise in cost of daily necessities, it underscores the uniqueness of the present trade war. There’s a key distinction to be made: the contemporary US trade policy has abandoned the traditional rules and norms of trade interplay, steering away from the culture of balance, restraint, and cooperation. These principles served as the pillars of the global trade system, although far from perfect, for the past eight decades.
Domestically trade is a divisive topic, sparking disputes at the international level because of the interconnection between internal and global markets. On one hand, some manufacturers seek access to foreign markets, while others wish to shield themselves from overseas competitors. Trade can improve purchasing options for consumers leading to decreased costs and consequently elevating living standards. Conversely, international competition could lead to job loss, resulting in lowered living conditions.
Trade doesn’t only influence individuals’ lives, but also plays a role in shaping a country’s international power and status. The wealth generated through trade can potentially elevate a country’s global influence. However, on the flip side, trade can hinder economic progress and diversification, which can relegate countries to the margins of global power.
Post World War II, tariffs were systematically diminished on a per-item basis but remained in place. Interestingly, in 2022, 51 percent of world imports were exempt from duties. Several of the retained tariffs are either minimal or play a preferential role, extending protection to certain economic sectors to aid their development and achieve global competitiveness. This goes to show how protectionism through tariffs fostered the growth of many highly developed industrial economies.
The usefulness of tariffs remains intact. As economies transition, some sectors depreciate in competitiveness, whereas new ones crop up that might need initial protection to firmly establish themselves. Alternatives to tariffs include non-tariff barriers such as quotas, domestic levies, value-added taxes, quality standards related to safety or health, and restrictions on foreign exchange. Non-tariff barriers are implemented by all countries to some extent.
While it can be cynical to view the use of tariffs and non-tariff barriers as dishonest tactics, it’s perhaps more practical to consider them as instruments that ensure the operation of the global trade system. This system calls for the stability and growth of domestic economies with access to foreign markets while reciprocally being open to international products. Balancing protection and access, domestic and global economic health, is a complicated issue.
Trade conflicts can unsettle markets, inflate costs, escalate unemployment rates, disrupt supply chains, stimulate nationalistic sentiment, and strain foreign diplomatic ties, even among allies with a long history of cooperation. Individuals bear the brunt of trade wars. This very reasoning gave birth to the existing global trade framework—a multinational organization set up by victorious nations post-war, with the primary goal to lower tariffs and increase global trade.
The negotiation to lower tariffs, and gradually diminish other types of trade barriers, gave rise to considerable give-and-take as each country’s delegation was determined to secure a good deal for their own nation. Ineffective negotiation doesn’t necessarily imply ineffective organization. The main objective of the organization was not to make trade liberalization a peaceful process. Instead, the focus was to provide a platform for negotiation on tariff rates and access to international markets, a far better alternative to resorting to conflict.
Skeptics view the current US trade policy as a repudiation of the role it has traditionally played in discerning and establishing the global trade system. The US has been instrumental in creating the global trade system, pushing for rounds of trade negotiations, and finalizing complex international trade agreements. The 1980s saw the US leading a new wave of international trade talks that had an ambitious agenda and extended beyond tariffs.
Internal rifts over free international trade have deeply divided the US for a long time. Various administrations introduced protectionist measures to limit foreign products that had a more efficient production compared to their domestic counterparts. The US has also been involved in trade disputes with key trading partners. Fears constantly circulate, predicting these disputes could escalate into an extensive trade war.
The current US administration continued to support protectionist policies with the aim of revitalizing domestic manufacturing. Notably, many of the tariffs introduced during the initial presidency remained in effect. Opposition to trade and utilization of trade policies and tactics that balance liberalization and protection are not unique to the US. History shows other nations have pursued similar strategies.
Historical perspectives can lend reassurance and perspective. We have previously endured tariff disagreements and impending trade wars, and on many occasions, these conflicts were either compartmentalized, resolved, or simply moved past. While it’s comforting to hope that a similar pattern will emerge this time, it would be unwise to rely solely on that assumption.
In this particular case, the trade war is unique. The American tariffs seem to embrace a zero-sum nationalistic rationality, starkly different from the past approach where the objective of trade policy was maintaining balance between domestic and international economic welfare. The previous combination of cooperation and competition facilitated the workings of the global trade system. In the current climate, predicting the US’s next move remains uncertain.