The new Cold War

Using its economic power to meet non-economic objectives is not new for the US. Sanctions against Cuba and Iran deny those countries access to financial networks and markets, and scare away other businesses who fear prosecution in the US. By Section 301 of the Trade Act of 1974, the US gives itself the ability to initiate actions against countries whose policies affect commerce.

Yet, the present administration has taken the stick of economic power to new levels. The US concluded the US-Mexico-Canada free trade agreement in 2018 to replace the NAFTA that had existed for 24 years. Although President Trump cheered the new agreement, that did not prevent him from overriding it by threatening Mexico with a 5 per cent tariff on all goods rising to 25 per cent by October if the country did not do more to stop the flow of migrants to the US.

President Trump’s constant demand for a border wall between the US and Mexico has led to derision. But the need to stem the flow of people is real. Agencies, in May, apprehended 132,887 people at the border which includes groups travelling as whole families and also thousands of unaccompanied children. Such an assault on the borders that has been ongoing for several months now only lead to desperate measures. With the US accounting for 80 per cent of Mexico’s exports, tariff threats are a strong leverage. Many of the migrants who originate mainly from Guatemala, El Salvador and Honduras pass through Mexico to reach the US.

China, the second biggest trading partner after Mexico has begun accusing the US of ‘economic terrorism.’ This is meant to encompass the whole range of Trump’s measures against China. This includes specific company targets such as Huawei, considered a spying threat, as also broad tariff measures. Chinese scientists face a greater level of scrutiny when they apply for visa. Chinese companies find it difficult to acquire technology-related businesses, and so on.

What is President Trump trying to get from China? It is more strategic here as compared to Mexico. For one, he wants China to provide a level-playing field to US companies who operate in that country. This would include not requiring the business to operate as a joint venture with Chinese companies, and not requiring technology transfer.

Trump has recognised that China’s openly stated ambitions in its ‘Made in China 2025’ policy, and the manner in which it is implementing the policy for global dominance are a long-term threat to the US. Thus, he has picked up the gauntlet that previous US administrations, who thought they could achieve their objectives by being nice, did not. It helps him that the US business lobbies are lining up behind the administration after finding that soft policies did not work towards China. New ways of prying China open include a proposed bill that would require Chinese companies listed on US exchanges to comply with US audit requirements.

China has begun to retaliate by advising its citizens about travel to the US, limiting rare-earth exports, and preparing a blacklist of companies that disrupt supplies for non-commercial reasons.

The WTO was meant to develop a global level-trading field. But when the two biggest economies bypass the WTO, and use their economic power to satisfy national non-economic goals, we are seeing a new version of the Cold War.

The writer is a professor of Suffolk University, Boston.

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