23 December 2024

Trade Wars Are Neither Good Nor Easy To Win – Analysis

Sourabh Gupta

‘Trade wars are good, and easy to win’, US President-elect Donald Trump tweeted three weeks before he authorised tariffs on China under Section 301 of the Trade Act of 1974 in March 2018.

Trade wars are easy to start, for sure.

The US president enjoys extensive congressionally delegated authority to ratchet tariffs upwards. Courts will not second-guess this exercise of authority if its usage is based on an ‘intelligible principle’, allowing the president to enact measures bearing a ‘reasonable relationship’ to the proposed trade policy objective. The US consumer towers, too, over their international peers and tariff-regulated market access can be a useful source of leverage to instigate dealmaking on trade and non-trade concerns such as market purchase targets, shutting down illegal immigration and closing passageways for fentanyl trafficking.

But are trade wars ‘easy to win’ too, as Trump claims?

The Trump tariffs did lead to a sharp dip in China’s share of US imports. His campaign promise of 60 per cent tariffs could have punishing short-term effects on China’s macroeconomy and currency as it flirts with the familiar ailments of overcapacity, underconsumption, deflation and indebted local governments.

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