GEOFF MILLER. Trump’s unilateral use of economic power: will it work, and what about the consequences?

Aug 8, 2018

Trump’s actual and threatened use of the United States’ economic power to bring about changes in other States’ behaviour raises questions about the utility of such behaviour and its likely consequences, as well as about the United States’ commitment to multi-lateral institutions.

The United States’ refusal to allow the replacement of retiring members of the WTO’s arbitral tribunal has already raised serious questions about its adherence and commitment to that very important international organisation, questions that are only made sharper by its actions in regard to China and Iran.

It has become steadily more apparent that the essential reason behind the United States’ threats of ever-greater and all-encompassing tariffs on Chinese exports to it has nothing to do with concerns about unfair low pricing of those exports, and everything to do with the threat it sees China posing to American technological pre-eminence.  It sees that threat as exemplified in China’s “Made in China 2025” program, which is the vehicle for China’s aspirations to become a global leader in various new technologies, of which Artificial Intelligence (AI) is perhaps the best known.

The US claims that in pursuit of that program China has not only subsidised the firms involved, but has also given them an unfair leg-up by acquiring relevant US technology, either by requiring US firms wanting to invest in China to transfer technology to joint venture partners, by simply buying US firms producing the technology, or by stealing it in some way.  (A case has just been publicised of alleged theft of rice varieties developed in California.)  It is stated that many US firms are genuinely concerned about such Chinese behaviour, though many have also been reluctant to make their frustrations public, because of the importance of the Chinese market.

Surely the correct course for the US Government to take, if it shares those concerns, is to address them through the WTO and its procedures, rather than by trumped-up punitive tariffs on Chinese exports which have nothing to do with the actual causes of US concern. There are four points to make here: first, the Chinese behaviour which the US is complaining about is by no means unprecedented.  For example, in the late ‘70s the South Korean Government and South Korean firms did many rough things in their dealings with foreign companies, in their drive to advance technologically while not losing control of their enterprises and industries.  The difference of course is that the Chinese economy is so much bigger, big enough to be seen in the US as a genuine competitor.

Secondly, far from turning to it the US is actually seriously weakening the WTO, by threatening the very continued existence of its arbitral panel.  Thirdly, it seems to think it has the right to decide what China’s economic goals and aspirations should be.  And fourthly, it seems to have expected that China would simply accept the imposition of tariffs and acquiesce in its demands, rather than respond with counter-measures of its own.  But, as reported in “The Australian” of 6 August, the Chinese Commerce Ministry has announced that in response it is considering imposing duties of between 5 and 25% on up to 85% of US goods entering China, measures which the Chinese Foreign Minister has described as a “necessary and justified response to the interests of the Chinese people”.  The newspaper reports US sources, including President Trump, as responding to the Chinese moves by describing them as “weak”, and raising questions about the strength of the Chinese economy.

It has often been said in the past, in regard to trade disputes, that unlike Australia and other middle and small powers such as Canada and New Zealand, which rely on multi-lateral institutions and rules, the United States prefers to negotiate one-on-one, given the weight which, as the world’s biggest economy, it can bring to bear on its negotiating counterpart—or opponent.  In China of course it is dealing with the world’s second biggest economy, with major expectations and aspirations of its own, and it’s by no means clear that its chosen course of tariff bullying will work.  (And of course what it will do to Trump’s proclaimed friendly relationship with Xi Jinping is another, and a very important, question.)

The US has chosen a similar course of unilateral bullying with Iran, basically threatening to ruin its economy by preventing third countries from investing in Iran or buying its oil, by refusing them access to the US market and financial institutions if they do so.  This is despite the fact that the IAEA has stated that Iran is in compliance with the terms of the anti-nuclear weapon agreement, the JCPOA, which the US has unilaterally left.  The US claims to have other reasons for being dis-satisfied with Iran’s behaviour, but it should not be forgotten that Iran’s support for the Assad government in Syria is in support of a legitimate government, as recognised by and represented in the UN.  Russian support for the same government did not prevent Trump seeking a summit with Putin. But nothing daunted, and despite its experience in Iraq, according to Secretary of State Pompeo the US is about to launch a propaganda campaign essentially designed to overthrow the government of, and bring about regime change in, Iran.

Where does this all leave us?  It leaves us with a radical State indeed, prepared to use its economic and other strengths to impose its will, and its idea of desirable outcomes, on others, despite the availability of appropriate multi-lateral institutions and arrangements—-and at grave risk to the world trading system on the one hand and Middle East security on the other.  It is indeed sad that the United States, which played such a major part in the creation of both the WTO and the IAEA, has sunk to this level, and we should be very chary of following in its wake.

Geoff Miller is a former Australian diplomat and government official, and was Ambassador to the Republic of Korea in the late 1970s.



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