Trump’s trade war isn’t a sign of strength, it’s the opposite

Photo credit: Richard Mortel

After World War Two, the US was the chief creditor nation of the world. Before the war, the country had a minor role in establishing the world order. However, after the war, the US enjoyed a stable political landscape, the most advanced technology, intact infrastructure back at home, and an enviable financial situation. Therefore, it was a no brainer that the US would be contending to fill the power vacuum left by the European nations in shambles.

Even during the war, the US strategists were already planning how to reintegrate the world economy. Bretton Woods was a consequence of that effort. Institutions like the World Bank (WB) and the International Monetary Fund (IMF), were borne there. The main intent was to integrate the world economy, making the US its main reference. Basically, the USD would be the reference for world currencies. On the other hand, the World Bank would be available to finance infrastructure worldwide. It would be available to finance roads, railways, airports, and harbors, which could facilitate the flux of cheap imports to the US and the export of value-added finished industrial products from the US.

However, for that kind of new world order to be complete, it was needed an institution that enforced liberalized trade. That’s how the US came up with the General Agreement on Tariffs and Trade (GATT) in the first place, which was the precursor of the World Trade Organization (WTO).

That setup was a huge sign of strength. Basically, the WB would only concede loans to countries that joined the GATT and the IMF. That ensured that they would have to trade with the US and couldn’t reduce their real debt through currency devaluations. Again, that was a sign of huge strength. The US was reinforcing its already super competitive industrial fabric.

Fast forwarding to the present, the US is on the defensive regarding the WTO. No longer does Washington sees it favoring their interests. The reason is simply that the US no longer holds an industrial edge. The Japanese first, and the Chinese more recently, have turned tables on the US regarding industrial might.

Additionally, in several areas, like climate change, China is leading the way. Presently, the White House doesn’t even acknowledge the problem. In the opposite direction, China is working hard to increase solar panel output, decreasing costs along the way. The road and belt initiative is today’s equivalent of the post-war reconstruction. It aims to integrate all Asia and the Middle East. However, it is also being contemplated by nations in Africa and South America. That will, certainly, open new markets for China. Finally, sooner or later, the Yuan will become a reserve currency.

Piece by piece, the old US world dominance is disintegrating, and a new superpower is taking its place. China is now a vibrant country, leading in many aspects, while also holding many flaws. However, the recent surge in US politics to protect coal and steel jobs will add up to be just a nostalgic look into a lost past. On the other hand, the bi-partisan fever to break big tech will only hold the US back in terms of technological development. The current muscle-flexing, in trade matters, does not reflect the power of the US, it only serves to show us that the cracks are appearing in what once was the indisputable leader of the world.

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