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Kotak Commodity Services Ltd

*The US cut off oil, iron and steel implementing a full embargo in July 1941, five months before Pearl Harbour

*Trump declared that trade wars are “easy to win”

As the China and America slide towards confrontation over trade, territory and ideology, so the sense of grievance on both sides is likely to increase. The Chinese and American presidents are both nationalists who frequently stoke feelings of wounded national pride. Mr Trump has claimed the world is laughing at America and that China has raped the US. Mr Xi has promised to preside over a “great rejuvenation” of the Chinese people that will finally bury the “century of humiliation” that began in 1839, when the country was invaded and partially colonised.

In announcing new protective tariffs on foreign-made steel and aluminum, President Trump declared that trade wars are “easy to win.” But the case of the 1937 trade war with Japan over cheap cotton textiles suggests that while Tariffs can help some domestic industries, but they pose real risks in foreign policy. Trump’s trade protectionism might serve his short-term economic and political goals, the long-term effects could be disastrous. Both moments involve foreign countries aggressively targeting a domestic American industry, sparking a trade war.

For the past 40 years, the world’s two largest economies have both embraced globalisation, based on understandings about how the other would behave. The Chinese assumed that the US would continue to support free trade. The Americans believed that economic liberalisation in China would eventually lead to political liberalisation. The foundations of America’s relationship with China crumbled last week. The key developments were a lurch by the US towards protectionism and a swing by China towards one-man rule.

In late 1936, as in recent years, representatives of a domestic industry raised concerns about a foreign power’s rapid investment in an expanding manufacturing sector that, aided by cheaper labour and exploitation, competed with American companies. Japanese cotton textiles had offered little competition to the dominant American industry until the mid-1930s, when exporters suddenly began dumping cheap products on the U.S. market. Cotton representatives argued that the dumping represented more than just an economic problem. They saw it as a hostile act, equating it with Japanese military aggression.

Regarding rising tensions in the Pacific, U.S. manufacturers suggested that their gentlemen’s agreement offered a “remarkably effective” barrier compared with the boycotts organized in response to aggressive Japanese military expansion. By offering the Japanese some access to American markets, one U.S. representative argued, foreign manufacturers could modestly expand trade “freed from danger of tariff increases.” Yet such promises of peace soon appeared hollow after expanded Japanese military aggression later that year. Boycotts and embargoes followed Japan’s invasion of French Indochina in 1940. The United States cut off oil, iron and steel, implementing a full embargo in July 1941, five months before Pearl Harbor. Date: 16-3-2018

Riddhi Siddhi Bullions Ltd

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