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Hither and Yon

Showdown: Historically, trade wars lead to real wars

February 11, 2017

Tags: trade deficit, surplus, trump, navrarro, china, japan, germany, korea, nafta, korus, tpp

February 9, 2017
Special to WorldTribune.com

By Donald Kirk

President Donald Trump’s most fearsome offensive on the world stage has nothing to do with immigration reform, or building that wall all along the U.S. border with Mexico, or defense or treaty alliances or the North Korean nuke-and-missile threat.

It’s all about U.S. trade relations with the rest of the world.

When you come right down to it, all that other stuff may be good for headlines but isn’t going to affect most Americans directly. The hassle over letting refugees into the U.S. doesn’t faze people too much on a personal level. Sure, Trump may be raising suspicions ― and prejudices ― against Muslims and Mexicans, but lives of most people won’t change dramatically just because he would like to keep them off American soil.

Nor do people really worry a lot, day in and day out, about the network of U.S. treaty alliances that shield them against their enemies. Kim Jong-Un may threaten to fire a long-range missile that’s capable of carrying a nuclear warhead to a distant target, but who believes he’ll really attach a live warhead to one of those devices or launch even a mid-range missile for real at targets in America’s Northeast Asian allies, South Korea and Japan?

Ah, but trade with the rest of the world is another matter. That’s where the money and jobs are, and Trump would not be president had he not won over rust-belt states with his promise to “make American great again.”

Inherent in the promise was and is the vision of bringing jobs and economic security, and upward mobility to middle-and-working-class people who have felt left out in the flight of industry overseas, the hollowing-out of once prosperous communities built on industrial prowess in the pre-digital age.

So what on earth is Trump going to do about it? Right off, he and his aides are talking about currency reform ― no, not the American currency but the currency of a host of other nations that they say is undervalued.

They’re convinced, if only China, Japan, Germany, Korea and maybe a few others raised the exchange rate of their currencies they wouldn’t pour out their products at bargain prices in the U.S., undercutting American products and costing jobs for American workers.

That’s an argument that’s easy to understand. The U.S. trade deficit is out of control. China made $347 billion dollars off the American market last year, according to the latest official stats from Washington, accounting for about 60 percent of the overall U.S. trade deficit.

Trump’s trade adviser, Peter Navarro, in a much-quoted interview with the Financial Times, singled out China and two other offenders, Germany and Japan, as currency manipulators. Japan’s trade surplus with the U.S. last year was nearly $70 billion. Germany came next with a surplus approaching $65 billion.

These numbers are so mind-boggling that it’s hard to know what to make of them. Combine them with the U.S. national debt of nearly $20 trillion, and you begin to wonder how much longer the U.S. can go on this way. Trump wonders too. That’s why he’s threatening to get tough, really tough, instigating a trade war beginning by slapping protective tariffs on China, as he’s said many times during his campaign and to a more muted degree since his election.

The implications of a global trade war, closing markets behind tariff walls, are disturbing.

Obviously South Korea, with a surplus with the U.S. last year totaling $27.6 billion, would be caught up in the turmoil. The U.S. might not label Korea a currency “manipulator,” but trade and commerce officials view Korea’s currency, like those of China, Japan and Germany, as “undervalued.” Trump has said he wants to do away with the North American Free Trade Agreement with Canada and Mexico, with which the U.S. also has enormous deficits. Next, he might go after the Korea-U.S. FTA, arguing that the U.S. deficit with Korea has only increased since the deal took effect five years ago.

The ruckus over the deficit risks repercussions far beyond trade. U.S. constraints on trade imposed in 1930 after the 1929 stock market crash are often blamed for bringing on World War II. That lesson resonates today.

Trump has the right and reason to bargain hard, but no one wants to risk the war that looms darkly over barriers to trade.

Donald Kirk has been covering economic, military and political issues in Asia for decades. He’s at kirkdon4343@gmail.com.

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