Tariff hikes pose a major threat to global growth

Note: The following article is taken from the Chinese-language "Commentaries on International Affairs".

The United States’ latest threats to impose tariffs on a handful of its trading partners, including more duties on 550 billion U.S. dollars of imports from China, has drawn fire from the international community. European Council President Donald Tusk was sending a clear message to Washington at the G7 Summit on Monday when he said "trade wars will lead to recession, while trade deals will boost the economy."

[Photo: IC]

History has proven time and again that trade wars have no winners, and that piling on tariffs only increases the complexity of trade disputes. Washington's obsession with tariffs and exerting maximum pressure on its trading partners has already substantively hurt the United States' economy, shaken confidence in the international capital markets, dealt a blow to global trade, and formed a stumbling block to global growth.

In the year and a half since Washington began provoking the trade frictions with China, global stock markets have fluctuated along with the ups and downs in the trade negotiations. Major indexes go up whenever there is progress, and then slide back down whenever there are new tariffs.

A report issued by the World Bank in June predicted that global trade will only grow by 2.6 percent this year, the lowest rate recorded since the international financial crisis in 2008. Washington's newly-announced additional tariffs on goods from China will undoubtedly further dampen global growth. Morgan Stanley has lowered its forecast for global growth in the first quarter of next year to 2.6 percent down from 2.8 percent, and is warning that further downgrades are likely to occur.

Washington’s primary goal is to force foreign companies out of China, especially companies from the United States. But by seeking to cut global supply and industrial chains formed on the basis of the optimal allocation of resources, it is fighting against the law of markets and the rules of free competition. In doing so, it will severely damage the existing highly-efficient production and operation management systems of the multinational companies involved. For example, a report published by Goldman Sachs last year says that if Apple moved its production and assembly lines back to the United States, the company's costs would rise by 37 percent. And a recent report by the Wall Street Journal pointed out that some global manufacturers that want to move their operations out of China will find it impossible, as other locations such as Vietnam can't match what China can offer.

There is mounting evidence that winning a trade war is not as easy as some people in Washington had imagined. Trade wars have a destructive impact on global growth, and will weaken the domestic economy in the United States. Any country that takes a unilateral and protectionist approach to trade, irrespective of the interests of other nations in a multilateral trading system, will ultimately become a victim of the policies it wields against others