Trade Wars and the Future of the Global Trading System
Over the past year,the Trump administration has been escalating its trade confrontations with its important trading partners. It has imposed tariffs on imports from China,as well as Canada,Mexico,the European Union,Japan and South Korea. Though not all of the threatened actions are in effect as of this writing,the impacts could still be huge.
These protectionist measures could have significant repercussions ¡ª reduced trade,redistributing income from domestic consumers to domestic producers,higher prices,benefiting domestic producers of the product but harming consumers who are forced to pay more. The consequences of import restrictions also include a reduction in exports and lower employment in downstream industries.
Most of the anti-import measures taken by the Trump administration fly in the face of widely accepted trade norms and in some cases are illegal. As Robert Z. Lawrence,a Harvard University professor and a senior fellow at the Peterson Institute for International Economics,wrote in his article How the United States Should Confront China Without Threatening the Global Trading System (August 2018),"Many of these steps have been notable for violating rules and regulations embodied by previous agreements with trading partners and by those enforced by the World Trade Organization (WTO),which have nearly always provoked trading partners to retaliate and warn of further actions".
Why does the Trump administration address its concerns this way? In my view,Trump believes that foreign production by US firms must be punished. Companies that maintain offshore operations must be forced to return some manufacturing to the US. Another goal could be to maximize US negotiating leverage with its trading partners and we can see that very clearly from the ongoing North American Free Trade Agreement (NAFTA) renegotiations.