The United States has been the global economic leader since early 19th Century but global economic epicenter has shifted to Asia led by China. Today China is the largest economy on purchasing power parity but on current prices (2018 estimates) the US has a GDP of 20,119(T), China 13,119(T), Japan 5063(T), Germany 3934(T) and France 2765(T) and with the current rate of growth, economist think, China will surpass the US in 2022.
Erosion of economic strength by a superpower is not very easy to digest as it has its strategic implications too. The science of economics does not go by sheer will of any country even an economic giant. Its mechanics go their own way; that is why trade and economic cycles come and go and the nations keep on trying to look for ways and means to revive the economies and to maintain a reasonable rate of economic growth to maintain superiority.
The world has been integrated through economic globalization that has resulted in growth as well interdependence. Therefore, the efforts by any single country have their ramifications for other economies also. Off late, globalization has been followed by economic nationalism and populists have won the elections in the US and in many European countries. Their leaders have started the protectionist policies by using the trade and investment on false notion of protecting the national industry. President Trump spearheads this campaign.
China is the largest trading partner of the US.
On March 2nd, 2018, President Donald Trump through his famous tool of Tweeter declared that "When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don't trade anymore-we win big. It's easy!" He announced the imposition of tariffs for the import worth 60 (B) USD on steel (25%) and aluminum (10%), involving dozens of supplier countries and is completely contrary to the norms of the World Trade Organization. He thinks the tariffs on imported aluminum and steel from China, Canada and Mexico may be good for American steel or American aluminum companies.
If the trade war really starts and continues, besides adverse impact on national economy, the individual states of America will hugely suffer due to export orientation of their provincial economies. Some analysts believe that big corporations like Boeing which alone sells billions of dollars' worth of airplanes to China, could be a top target for retaliatory measures to their dis-benefit. American states export aero planes and parts (of which China is a big market), electric circuits, medical devices, brewing and distilling waste, raw gold, zinc, beef, medicine, cigarettes, corn, coal, petroleum, aluminum and motor vehicles. Their exports include crude oil, petroleum, airplanes, motor vehicles, machinery, peanuts, medicine, prepared beef, printing machinery, vaccines, jet engines, electricity and various compounds. The US has always been at a "major crossroads when it comes to trade policy in this country" and experts opine that there is a need to seriously think before considering the protectionist course of action.
Economic historians have held that tariffs had been a major "cause of war and that protectionism is an attempt by governments to inflict on their own citizens in peacetime the same kinds of harm their enemies attempt during wars".The experts believe due to capacity constraints of the US industry and the deep entrenchment of its companies in global economy, trade war will not be feasible.
Today's US is a global superpower but from historic perspective, the lessons of the previous trade wars are still relevant. Most importantly, trade wars don't always work in practice the way they are supposed to work in Trump's theory due to overly increased involvement of currencies, investments, technologies and convenient movement of factors of production. Geo-strategists believe that trade sanctions can raise the spectre of armed conflicts if modern economic warfare is not won through the economic weapons like those aforementioned. Geo-economists still go for success of war through economic means but they can serve the purpose of weapons of 'mass contraction' also if not used intelligently.
That is what had happened in the 1229 Great Depression and the global financial and economic crisis of 2007 that was followed by a huge contraction of the US economy and a negative rate of growth and revival at a slow pace of development even after a decade. The US has the problems in its federal system also and a reference has already been made about the trade by the states in various goods and heavy reliance of some of the states thereon. What then President James Madison candidly said "Must we remain passive victims to foreign politics" two centuries ago remains relevant today.
The American economic experts also believe that trade wars are not likely to succeed in the era of geo-economics and are rightly skeptical of using economic policies to strengthen American power projections. Individual states depend a lot on exports to China.
Problem with super powers like America is that instead of going for right economic steps, they look for artificial means like Weapons of Mass Destruction in Iraq and trade wars with other economies when their own system fails. A trade war may prove as weapons of 'mass contraction' in a globalized economy. Like others, the US politicians also have short memories of economic depressions and Trump also wants to re-invent some wheel in its trade policy without fully understanding the true economic implications thereof. Unfortunately, the entire world is today in search of economic leadership.
(The writer is an ex-Economic Diplomat)