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MPUTHIA: Mediation best way to avert global trade

war
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4-5 minutes

Personal Finance

Sunday, July 15, 2018 22:00

By CATHY MPUTHIA

A man checks stock price movements at a securities company in Beijing. In a

trade war, there are only losers. FILE PHOTO | NMG 

Two nations that are arguably the world’s largest that is, the United
States (US) and China are on the brink of a trade war that could affect
global commerce.

A trade war is an economic conflict between two countries in which

one uses tariffs and other technical barriers to trade in a punitive and
protectionist manner. A trade war would make imports from the
affected country very expensive and in effect may cause a weakening
of the affected state’s economy especially if it largely depends on
global trade.
Trade wars have been used a lot historically by many nations
especially the US. In 1930 for example, a tariff bill was passed by the
US leading to retaliatory measures by about 30 countries. Trade wars
were an indirect cause of the great recession and contributed to a lot
of global conflicts.

In fact it is said that World War II was a result of global trade wars.
Trade wars are clearly a dangerous and undesired event. They do not
just occur, they arise out of one country’s policies amongst other
things.

The looming trade war between the US and China is due to allegations
by the former of unfair trade practises including alleged intellectual
property theft and discriminatory trade practises by Beijing.

The so called discriminatory trade practises centre on China’s alleged

discrimination against foreign businesses through the use of
protectionist measures. It is alleged that China favours its domestic
business and is unfair to foreigners.

In fact there are a lot of scholarly articles and studies on China’s

alleged World Trade Organisation (WTO) violations. One scholarly
article decried China’s protectionist laws as being against WTO
principles.

Another cause is the desire by the US to protect its domestic steel

industry. Protectionist steps by the government have happened before
in the past and have been the subject of WTO panel decisions such as
DS436 and DS184.

A protectionist tariff would enable a country protect its domestic

industries against dumping by making imports from a competing state
more expensive than the products and services available in the
domestic industry.

A trade war between the US and China would affect the global
economy slowing down trade by up to three per cent. A trade war is
very drastic and is undesired especially when there are WTO and GATT
(General Agreement on Tariffs and Trade) provisions for softer
redresses on the matter.

The general spirit of WTO and GATT is liberalisation of trade, whereby

technical barriers such as high tariffs are frowned upon, though not
prohibited when a country seeks to protect its domestic industry from
dumping. US threats of protectionism are therefore not quite contrary
to WTO and GATT. I am not privy to the facts about China’s alleged
unfair trade practises. However, if true they would be against WTO and
GATT. The US has already announced plans to sue China at the WTO.

Given the escalating situation it would be ideal for the WTO to

intervene as it has a defined dispute resolution mechanism that may
be adjudicative or reconciliatory. The latter is the preferred means of
settling the dispute. The WTO has diverse remedies including allowing
for retaliation where one country doesn’t adhere to WTO findings.

I hope for a sober, speedy and conciliatory resolution of the dispute,

which in any event can be prevented at this stage through negotiations
and mediation.