The financial market is in a coma. The company is operating Helter-Skelter to ensure its factory buzzes. Thanks to President Donald Trump’s full collection of goods, political leaders are scrambling to avoid social collapse.
“This level of (tariff) is 10 times what Trump did in his first term, similar to the peak of Smoot-Hawley tariffs about 100 years ago,” said Nomura economist Rob Subbaraman. “The prospects are still very uncertain whether the deal is reached or the retaliation is intensifying.” Trump has lasted most of the tariffs for 90 days, in addition to China, telling not only the story of the trade war but what historians call “the politics of a great power.”
China, the trading partner of the U.S.’s largest deficit, is the only major economy to retaliate against our counter-tariffs. The world is observing who blinks first. Whoever blinks, global trade may not be the same anymore.
The road to globalization
The 20th century may have been the most popular destruction in human history due to the prosperity and pleasure brought by scientific advances and inventions, but it also shows the barbarians of humanity, killing millions of people in the two world wars.
When the troops fought, British Prime Minister Churchill set sail to meet with U.S. President Roosevelt on the Canadian coast, which led to the Atlantic Charter, a document that had never been signed. In addition to its political agenda, it has two important proposals to make free international trade the cornerstone of lasting peace. The 1941 charter, together with Marshall’s plan to rebuild Europe, became the basis of economic policy. In addition to the Bretton Woods twins (International Monetary Fund and the World Bank), the state developed a trading system under the General Tariffs and Trade Agreement (GATT), which ultimately led to the World Trade Organization. “Non-discrimination” is the fulcrum of the WTO. Countries should have extended the benefits they paid in one country to all member states. Every imported product should be considered a national product. The WTO is the arbitrator of disputes through member states’ participation in formulating rules. It has been at the forefront of global trade since its birth in 1995. But over the past decade, with the emergence of regional trading groups, it has become increasingly lost in relevance. To be sure, globalization was not born after World War II.
The Harapan civilization established trade ties with the Sumerians in Mesopotamia. Malay Joras; explorer Marco Polo’s famous Silk Road connecting Venice with China. But the latest version is said to be a rule-based version. For much of the world’s poor world, the WTO and its predecessor, Gatt, are replacing the gunboat diplomacy of European colonization.
Membership of the club is limited to democratic countries. At least in the early days, countries under the jurisdiction of the Communist Party were denied entry. Developed countries invented many things that could improve people’s material welfare, but they quickly depleted the market with low population growth.
The WTO is their tool to enable developing countries to open economies to overseas commodities. In terms of development, countries such as India, China, Indonesia and Vietnam have no private companies that could match GE or Siemens or Ford in the 20th century. This is an unbalanced field of competition. However, developing countries have also given some concessions under a broad preference system that provides room for differential tariffs on goods originating from developing countries, which is not important.
Trade scaling. The WTO shows that between 1995 and 2023, the average rate of world trade (good and commercial services) was 5.8%, which translates to nearly five times the growth. Starting from 20% during the same period, the global Tradeto-GDP ratio soared to 29%. The IMF and the World Bank are also willing to work hard to pass the open market agenda, which helps multinational corporations more than locals and often causes more pain to people.
Enter China
Although the global trade system is a fair and just order, many developed countries manipulate regulations aimed at limiting unfair competition to harm and protect certain local industries.
Nobel Prize winner Joseph Stiglitz wrote in globalization and its dissatisfaction: “While they (the West) preached that developing countries should not subsidize their own industries, they continue to provide billions of dollars in subsidies to their farmers, making it impossible for developing countries to compete.”
“Although they preached the virtues of competitive markets, the United States quickly pushed the global cartels of steel and aluminum when its domestic industry seemed threatened by imports.” The game changed the rules of the game, fitting not only the economic needs of high-level countries, but also their political goals. China is a Communist-run country that was sent to the WTO in 2001 for campaigns, with the rest of it going towards democracy and opening up its market.
Twenty-four years later, the opposite is true. China violated its promises. It has not opened up its market and restricted the operations of global companies, including Google. It forced multinational corporations to engage in joint ventures with locals, which sparked allegations of Chinese partners stealing intellectual property rights. This allows them to produce imitators for a small portion of the price and sell them on the Western market.
The state-managed economy subsidized businesses and manipulated the currency to gain a competitive advantage over others, while U.S. officials have been threatening punishment, but have not achieved it. Its trillion-dollar trade surplus became a springboard for its political ambitions, such as the Belt and Road Initiative, which built infrastructure in many poor countries and purchased their support. Its rising economic power not only weakens the U.S. economy, but also threatens its hegemony.
As history shows with France, Germany, Britain and we, it is the transformation of economic power into military dominance. Trump may be trying to maintain his advantage through weapons tariffs.
“The rising China will have strategic interests outside Asia,” John Mearsheimer wrote in the tragedy of great power politics. “China will have good reason to intervene in American politics in order to cause trouble in Washington in its backyard. China will have strong incentives to connect with Canada and Mexico.” Trade policy is often about trade, and politics.
