The issue of trade wars has never really dropped off the radar since it first reared its head in early 2018. It is difficult to even know at what stage of the game we are in as announcements keep coming out, statements saying that import tariffs are being imposed by this country or by that country keep on being published, while one never really knows whether these tariffs have actually been implemented.
One of the latest announcements was made by the United States, which said that it has blocked a group of Chinese technology companies from buying US-made goods just before the next round of trade talks between the two countries. The US said that this decision was taken in retaliation against abuses in human rights committed by the Chinese government.
Last week we also had the imposition of tariffs on food products produced by EU member states, such as wine, cheese and prosciutto and similar products.
What is now emerging is that, whereas before, the justification of import tariffs appeared to be motivated by economic considerations – mainly the need of the US to tackle its trade deficit – nowadays the trade war is becoming a political weapon.
An indication of this is the fact that the US did not impose a common tariff on similar products coming from the EU, but differentiated between similar products coming from different countries. Friendlier countries are facing lower import tariffs.
We need to place the development of international trade in a broad historical perspective. Going back some two centuries, taxes on products coming from outside a country used to represent a significant portion of the State’s – or should I say king’s or prince’s or duke’s – income.
Malta was one of the countries that benefitted from international trade
One of the first steps taken by the German states in the process of unification, was to remove such taxes. Free trade came before political union.
The story repeated itself in the early 1950s after World War II. Political cooperation between nations that had been locked in war just a few years previously started with the establishment of a free trade area of sorts.
In fact, the first name of the European Union was the European Economic Community and the predecessor of the EEC was the European Coal and Steel Community, which enabled the trade of coal and steel among six countries.
Trade taxes seem to be indigestible to most countries. The event that triggered the American War of Independence was the imposition of taxes on tea.
The Boston Tea Party was a protest by the American Colonists against the British regarding the tea taxes that had been imposed on them.
The move towards free international trade, either through bilateral agreements or through multilateral agreements, was inexorable in the second half of the 20th century. It was a way of supporting the economies of a number of countries to develop.
It became a recognised fact international trade created wealth for all. Malta was one of the countries that benefitted from international trade. Our economy developed by leaps and bounds thanks to the free trade of goods and services.
One can even go as far as saying that everyone loses from trade wars. There may be some quick small wins but they will be short-lived. It is doubtful whether the imposition of import tariffs by the US will actually reduce significantly the trade deficit it has, which was the objective of such tariffs in the first place.
Economic activity is slowing down in the world’s leading economies, with a resultant effect on employment and incomes. Moreover, consumers are having to pay higher prices for products because of these tariffs.
The world cannot afford to put the clock back, not just decades, but centuries. Countries have flourished thanks to international trade, including those that today want to wage a trade war.
It is indeed hoped that sense prevails throughout. The World Trade Organisation has slashed its forecast for trade growth this year by more than half, warning the slowdown could hit living standards and jobs. The world does not need a trade war.