War economy - AHMET ULUSOY

War economy

One of Trump’s most significant election promises was bringing back the old power of the U.S. and building a “stronger U.S.”

During the elections, Trump supported the idea that globalization steals the U.S. capital and production abroad, which is in conflict with the U.S.’s interests and he made his supporters adopted this thesis, too.

The thesis “making America great again” and globalization is in conflict with the U.S. interests were harbingers that aggressive policies and unusual steps would be pursued in trade.

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Before coming to power, Trump’s harsh criticism against China regarding its foreign trade deficit and calling it a “champion of manipulation” indicated the upcoming war.

However, it should be noted that the U.S. administration is confused about this.

In the beginning of March 2018, Trump stated that trade agreements were stupid and that the U.S. was not in war against China. Then, he tweeted that trade wars were good and that the U.S. would win this war.

The Trump administration’s decision to impose a 25 percent tax increase on steel imports (exempting the biggest suppliers Mexico and Canada from this tax) and to put an additional $50 billion tariff on nearly 1000 items which are imported from China has officially started the trade war.

Even though this war is apparently between the U.S. and China, many countries including the EU and Turkey are somehow in it.

The U.S. aims to decrease its trade deficit and strengthen its economy (to increase employment and production) by weighing down the cost of its deficit ($800 billion) on China and other countries.

China which announced that it would retaliate (on April 2018) and increase tax on 128 items (imported from the U.S.), which will be around $4 billion, is causing the problem to branch out and making countries like Turkey open to the impacts of this war.

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U.S. spokesmen do not want such a war either and say that the U.S. and China should avoid it because everybody will lose.

The EU and China have increased their calls to the U.S. saying that problems should be solved with mutual negotiations, not by unilateral measures.

The U.S. lightened the mood by exempting the EU, too, from tariffs, which were imposed on steel and aluminum in March.

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Even though the Chinese administration stated that it would primarily defend China’s interests against the U.S.’s decision, it also said that it did not want a trade war, that the U.S. was violating the rules of the World Trade Organization and emphasized that commercial affairs should be normalized.

The U.S. administration first opposed China’s announcement about its additional tariffs-- on 128 items imported from the U.S.-- and said it could increase tariffs to $100 billion on April 6, yet that they were still open to negotiations.

That is to say, the U.S. administration knows that a trade war will cause both countries to lose.

China won’t be the only losing side in a mutual trade war.

This war can cause the U.S.’s export industry to face a decrease in production and a decrease in employment.

Even if China does not retaliate at all, its exports and, accordingly, its Gross Domestic Product will decrease, so that its imports from the U.S. (and accordingly its export revenues) will fall. Thus, its foreign trade deficit will increase.

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Apart from the U.S., can any other country blame its trade deficit on another country?

Rules are made by the mighty and broken by them.

If any other country adopted such an approach, the World Trade Organization would have ostracized it in a blink.

But it does not raise its voice against the U.S. administration.

What is happening today is not only a trade war but an attempt of aligning countries through economy.

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I repeat here one more time that classic economic theories in course books and international institutions that try to regulate economic life have lost their validity.

A new economic theory and system (war economy), completely managed by the mighty, made into a rule with unprecedented pressure and legitimized with the image of trade wars, has been invented.

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