Money Matters

The US Midwest will suffer in Donald Trump’s trade war

July 9, 2018
By John Kasich

America’s first war, for its independence, began with “the shot heard round the world”. Sadly, the latest one — a trade war supposedly in defence of US economic independence — is beginning with a shot to the foot. We long ago understood that competition without ethics or fairness is counterproductive.

America’s first war, for its independence, began with “the shot heard round the world”. Sadly, the latest one — a trade war supposedly in defence of US economic independence — is beginning with a shot to the foot. We long ago understood that competition without ethics or fairness is counterproductive.

So we developed guardrails to protect against the dangers of excess. Similar guardrails manage the sale of goods and services when buyers and sellers are in different countries. For this trade to be mutually beneficial, excesses must be tempered and differences between countries reasonably accommodated.

The global trading system has, on balance, benefited us all. Trade makes up more than 50 per cent of gross domestic product, according to the most recent data, and the value of goods traded has increased 40 per cent in just the past decade. As one of the chief architects of this framework, the US has shared enormously in this success. Our exports, growing at an accelerated pace, have totalled $6.1tn over the past four years and today support more than 10m US jobs.

These gains do not mean the system is perfect, however. In an ever-changing world, constant adjustments are needed to keep the playing field level so innovation and competition can continue to progress. Frustrations with emerging inequities are justified, but rants, rage and unilateral actions only result in self-inflicted wounds. The White House simply does not get this.

Last week, it is scheduled to fire off the latest volley in its escalation towards a trade war with tariffs on more than 800 product categories. The president’s previous tariff whacks have already hit a range of industrial and consumer goods.

Their source countries include China, with whom we have a complex relationship of adversity, competition and symbiosis, Canada, our largest trading partner, the UK, one of our closest allies, and the EU, with whom we have essential security partnerships defending democracy and combating terrorism. None of them will simply sit and take it. If Ohio were a country, our $649bn economy would make us the 21st largest in the world. We proudly sell worldwide — including almost $4bn annually to China and more than $18bn to Canada. That prosperity starts to erode when China, Canada, the UK, the EU and others slap tariffs back on us. Canada and Mexico’s tariffs alone would affect $3.3bn of Ohio’s exports, including steel, washing machines and even soap. At a time when Ohio and other states are experiencing strong growth after a slow economic recovery, these self-inflicted wounds are a setback.

China’s disregard for intellectual property rights, other nations’ inequitable protections of favoured industries and our own tolerance of both have increasingly tilted the playing field and must end. Furthermore, the World Trade Organization’s processes must be modernised to allow company-specific remedies and faster relief before damage from unfair trade practices becomes permanent. Modernising the world trading system is only possible if there is something left to modernise.

The administration’s disregard for the rules-based system the US helped establish and its full frontal assaults on trading friends and foes alike are akin to a knife fight in which the one who bleeds out last “wins”. It risks leaving an essential infrastructure in tatters. How did the 2008 financial crisis affect you? Global financial crisis tell us your story fixes to the international system of trade rules can be pursued aggressively as well as constructively. That essential, sophisticated nuance will be necessary if the US hopes to shape and share in a prosperous global economy.

The Trans-Pacific Partnership is a model for the kind of trade agreements the US should be embracing, not retreating from. Its protection for intellectual property and enforceable standards for companies, as well as the counterweight it provides to China, advance our interests.

While 11 countries move ahead without the US, valuable opportunities are being missed. America has not only lost better access, on its terms, to growing new markets, we have potentially ceded economic dominance in the region to China. When the chief designer, beneficiary and advocate of the world trading system spontaneously and unilaterally abandons it, only its opponents benefit.

The White House mindset — that surgery always requires killing the patient first — leaves us with fewer partners to protect democracy’s essential freedoms against the likes of Russia and China. Unless the aim is a wholesale realignment toward them, a quick about-face is required, but the clock is ticking.