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An essay on
New war fronts lie in the economic zones
Mushtaq Ahmad Mahindro

Outline:
1. Industrialization in Europe and the colonialism.

2. Protectionism by the developing world and establishment of WTO.

3. TNCs move to China, India and other East Asian countries.

4. China becomes the largest production growth engine in the world.

5. The resurgence of Protectionism in America and the trade war.

6. The American withdrawal from TPP

7. The American invitation to the TNCs and the tax concessions.

8. American sensitivity with China’s Belt and Road Initiative (BRI) and CPEC

9. American economic sanctions against Russia after the latter’s annexation of Crimea

from Ukraine

10. American economic sanctions against North Korea to force the later to cap and

dismantle its nuclear installations.

11. The Solution: Developing the core competent areas and going for inclusive

globalization being the only way out.

The new war fronts appear to lie in the economic zones as the same is evident from the

ongoing trade war between USA and China, China’s BRI/CPEC like projects, and USA’s

economic and trade sanctions against Russia, North Korea and Iran to pressurize them to meet

certain political ends.

The nineteenth century was a century of manufacturing in Europe. Whereas the rest of the
world was mainly agrarian economies. The European nations needed markets/countries to sell their
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manufactured goods and get the necessary raw material to feed their industries. The countries of

Asia, Africa, and Latin America happened to be the best choice for them as agriculture was still

the mainstay of their economies along with the mining of certain minerals. European countries like

UK, France, Spain, Netherlands, Belgium, Italy, Japan, and Portugal by virtue of their superior

weaponry and technology colonized almost all these three continents. They divided the colonies

among themselves. Even they fought wars among themselves to take control of the maximum

number of colonies. The territories so captured by the European powers were used exclusively as

a source of raw material for their industries and markets for their manufactured goods. With
economy, trade, and exploitation at the base, they fought two world wars.

World War II ended in 1945 weakening all the imperialist powers. Then an era of

independence of the colonies started which got completed within almost fifteen years. Then came

the neo-colonial era in which the newly independent states though were not under physical control

but were brought under the politico-economic influence by the ex-imperialist powers. The

dominant powers in this era were the USA and the Union of Soviet Socialist Republics (USSR).

The cold war which was started in 1947 between these two powers ended in 1991i.e. after the

dismemberment of USSR. This cold war was also economic at the base.

The newly independent countries also started establishing industries to save their foreign

exchange. To encourage their nascent industries they used to impose high import tariffs on the

products which were manufactured locally. The technologically advanced Western nations did not

like such protectionist policies of the developing world. They came out with the World Trade

Organization (WTO) with the objective of liberalization of trade and doing away with the culture

of high import tariffs. They said, “Let the commodities compete among themselves.” That made

the markets full of products of the industrialized world.

To keep the products competitive in the market the Transnational Corporations (TNCs)

started moving from western countries towards countries like China, India, and ASEAN where the
labor and other utilities were cheap. China after the market reforms introduced by Deng Xiao Peng

in 1978 benefitted more from this international investment. Almost within twenty years markets
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of the western world were swarming with made in China products. Their balances of trade also

went in favor of China. The jobs also moved from the Western nations to China, India, and

ASEAN.

The economies of the West got hard hit with this phenomenon. They, however, construed that

the downturn in their economies and joblessness was due to the immigrants. This mindset went so

deep into the minds of the people that it got reflected in the form of Brexit and winning of elections

by Donald Trump. These were all anti-immigrant votes.

To boost the slow economy, the Trump regime started following the same protectionist policy
which the developing world once was pursuing before the WTO culture. It did so by imposing

huge tariffs on certain imports particularly Steel and Aluminum. The most affected countries in

this regard happened to be China and the EU. In retaliation, China and European also announced

to impose duties with the same ratio against the imports from the USA. This has led to a trade war

most notably between America and China.

The long-time trade deficit of the United States has forced the US to withdraw from the

Trans-Pacific Partnership (TPP) and replace it with multiple bilateral trade agreements. President

Donald Trump withdrew from the Trans-Pacific Partnership (TPP) trade deal in Jan 2017

distancing America from its Asian allies. This was mainly for two reasons; one – there was an

increasing China’s influence in the region; two’ to boost manufacturing in the US by seeking one-

on-one trade deals with countries having fewer bindings on the US for terminating the same if not

favorable to the US. When Trump withdrew from the TPP, there were fears that it would not

prosper without the US. But the remaining 11 members resolved against US protectionism through

global trade. These eleven Pacific Rim countries on 8th March 2018 signed a free trade agreement

renaming it as a Comprehensive and Progressive agreement for Trans-Pacific Partnership (CPTPP)

in Santiago, capital of Chile aiming at streamlining the trade and slashing tariffs among the

member countries. The members are Australia, Brunei Darussalam, Canada, Chile, Malaysia,
Japan, New Zealand, Peru, Singapore, and Vietnam. While talking on the occasion, the Chilean
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Foreign Minister said, “CPTPP is a strong sign against the protectionist pressures and in favor of

a world open to free trade, without unilateral sanctions and the threat of trade wars.”

In line with its protectionist policies president Trump is going for all-out actions

to bring back the companies that have moved out of the country in the past leaving behind the

joblessness. In this context, he met with a dozen American manufacturers at the White House

pledging to slash regulations and cut corporate taxes. He went to the extent that businesses that

choose to move plants outside the country would pay the price. He further said, “We are going to

be imposing a very major border tax on the product when it comes in.” He further said, “ A
company that wants to fire all of its people in the United States, and build some factory someplace

else, and then thinks that that product is going to just flow across the border into the United States

- that’s not going to happen,”

To boost Steel and aluminum production in US Trump regime announced to put a tariff up

to 25 percent on Steel and Aluminum in March 2018. It will not be out of place to mention here

that around 6.5 million people work in US industries that use Steel and Aluminum. US imports

around 90% of steel from 110 countries of the world, China is the largest exporter of Steel in the

US. The US imports roughly 8 percent of global steel.

Concerning China Trump regime planned to impose 25% tariffs on $50 billion worth of

Chinese goods. In response, China announced 25% tariffs on $50 billion worth of US goods. On

that white house released a statement that on June 2018 that the US plans to impose 10% additional

tariffs on $200 billion worth of Chinese goods if China retaliates. The USA accused China over

the unacceptable massive trade imbalance between the two countries, and China’s violation of the

American intellectual property. Responding to this China vowed to take adequate measures to

reduce the US deficit with China and improve intellectual property protection. However,

concerning American protectionist planned moves, China expressed its resentment by saying that

it will affect the global economic order as the US was violating the market rules, going against the
world’s development trend and hurt both the Chinese and American enterprises’ interests by

launching a trade war. According to China, its countermeasures are to defend the state and the
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Chinese people’s interests and safeguard the free trade system and the common interests of human

beings. However, the communique issued after the negotiation between representatives of both the

governments valued quality in bilateral trade and pledged to expand cooperation. During the

negotiations both China and USA agreed to deal with conflicts constructively. After the

negotiations in June 2018, the Chinese foreign minister said, ‘we have two choices, cooperation,

and win-win or conflict and lose-lose. China has chosen the first one but is also well prepared for

the second one”.

Nonetheless, President Trump’s move started a global trade war that had a negative impact
on the international trade order. EU also necessary measures to safeguards their economic interests

in response. Canadian trade officials have said that Trump’s planned tariffs would be unacceptable.

The consequences will be extremely harmful. WTO said, “It is concerned over tariffs.” But despite

all these things president Trump said, “When we are losing millions of dollars- trade wars are

good.”

It appears that the American protectionism immediately may result in boosting the American

economy. But this protectionist offensive is not going to last for a long time. It will die shortly as

it is going to have harmful impacts on the American economy due to overall decreased

international trade including that of the US. High US imports tariffs will significantly be reducing

the foreign exchange earnings of the exporting countries thus their purchasing powers accordingly.

The reduced purchasing power of these countries, in turn, will create a negative impact on

American exports to these countries. American protectionism may not be penalizing the European

and Asian economies to that extent as the regional economic alliances like CPTPP, ASEAN, SCO,

and EU will be neutralizing the adverse effects resulting from the US protectionism on account of

increased trade among themselves. Also for the reason that TNCs which have moved out of US

would not be coming back in the number and strength as visualized for the reason that US couldn’t

prove competitive Vis a Vis China, India, and ASEAN like countries with regard to all the three
sources of production, i.e., land, labor, and cheap capital. Hence, the simple tax reduction incentive

given by President Trump does not appear to work more.

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If it continues, this may lead to sluggish economic activity even within the boundaries of

the trade war belligerents that is the USA, China and Europe, and in due course of time affecting

the whole world. As curtailing the imports from any country means cutting down its purchasing

power from other countries.

According to some analysts, American protectionism and trade war will be pushing China

towards Russia and SCO more. It has already invested around $40 billion in Russia since 1991.

For China, Russia is a source of well-needed energy and raw material.

American sanctions against Russia for selling oil to North Korea will not serve any purpose
as it cannot impose Iranian style sanctions like banning the purchase of Russian oil and gas without

harmful effect on the global economy. Likewise, Australia’s 60 percent trade is now in the Asia-

Pacific region.

China’s One Belt One Road (OBOR) generally called Belt and Road Initiative (BRI)

announced in 2013 is being implemented under China’s 13thFive-year plan (2016-20). It has two

components one Silk Road Economic Belt originating from China’s Eastern coasts stretching

towards Northwest China, and from there through Central Asia into Europe, and the Maritime Silk

Road from Eastern coasts to Southeast Asia through the South China Sea, Strait of Malacca to

North Africa. The BRI initiative aims at encouraging and utilizing Chinese firms enhanced

capacity to invest internationally particularly in the emerging economies. This will also help

China’s massive foreign exchange reserve to be used in FDI abroad. Additionally, it will enable

China to transfer its technology and development know-how to the less developed economies of

Asia and Africa. The infrastructure development associated with BRI will not only promote the

economic development of the host countries but will help Chinese exportable surplus

(products/services/skilled human workforce) to be adjusted world around. The BRI is not only

China dependent project but a collaborative as well associating other TNCs from Europe and

America though mainly contributed by Chinese companies.

In April 2015, China signed a package of deals worth $46 billion to develop China

Pakistan Economic Corridor (CPEC) an economic corridor connecting China's northwestern

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region of Xinjiang and Pakistan's Gwadar Port. This port will allow Chinese oil tankers from the

Persian Gulf to port and ship oil and gas to China's Xinjiang-Shanghai oil pipeline directly. Also,

Chinese manufacturing products could also be shipped via land to Gwadar and then re-shipped to

the Middle East once the road and rail links are completed. Chinese, Pakistani and other

international companies will be involved in communications infrastructure and power generation

projects.

BRI thus appears to be a mutually beneficial, joint responsibility and a shared destiny. BRI

is going to span 68 countries, and China has so far invested over $90 billion in projects ranging
from highways in Pakistan to railway lines in Thailand. Western TNCs are selling billions of

dollars of equipment, technology, and services to Chinese firms building along with it. Firms, such

as Caterpillar, Honeywell, and ABB, global engineering giants, DHL, a logistics company, Linde

and BASF, two industrial gas and chemicals manufacturers, and Maersk Group, a shipping firm,

rattle off lists of BRI projects. Deutsche Bank has structured eight trade deals around it and has an

agreement with the China Development Bank, one of China’s policy lenders, to fund several BRI

schemes. This collaboration is for the reason that at the moment Chinese groups have little

experience abroad and that their Western counterparts offer a technological edge and thorough

knowledge of local conditions across the BRI region. However, there is an apprehension in the

developed world notably the USA that BRI, in the long run, will open up new markets for Chinese

companies in areas which are currently dominated by Western companies, ranging from

engineering and telecoms to shipping and e-commerce.

The USA clamped economic sanctions against Russia when the later annexed Crimea from

Ukraine in 2014 after holding a referendum there, the result of which favored annexation. Russia

did so as the West facilitated the toppling of the pro-Russian government of Ukraine via

nondemocratic way. Likewise, the USA has clamped economic sanction against North Korea for

its USA sensitive development of nuclear arsenals and its delivery system. Same is the case with
USA- Iran standoff. In all these three cases Economic and trade tools are being used to pressurize

the opponents.
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This all is indicative of the fact that the trade war or any protectionist policy will not favor

the USA as such policies will overall dampen the international trade hitting everyone equally.

Protectionism will lead to a lose-lose situation. Such moves are against the wind. The economies

are becoming borderless, TNCs reducing the role of governments in direct economic management.

The world is set for inclusive globalization and not for an exclusive one. The world has become

interdependent and interconnected to the extent at present it has never been in the history of

mankind. Any deviation from that at this juncture of time will be moving against the dictates of

the time. I don’t believe such policies are going to last for a long time. Hence, the solution lies not
in protectionism but in developing one’s core competent areas in which they have a competitive

edge over others and letting the products compete with each other in the international market on

the basis of quality and price. For instance, for the USA and Europe, it would be appropriate for

them to focus on innovative high tech industrial setups supported by their research-oriented higher

education industry. These are the capital intensive high tech creative industries not the labor-

intensive consumer goods industries which suit thickly populated regions of the world like China,

India, Brazil, ASEAN, etc. Concerning American trade war, I would say ‘prudence,’ not the

‘protectionism’ is the answer.

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