Opportunity and danger: Trade war and summit
CROSSROADS (Toward Philippine Economic and Social Progress) - Gerardo P. Sicat (The Philippine Star) - June 13, 2018 - 12:00am

A contradiction of opportunity and danger summarizes three major current events that are shaping the geopolitical and international trade scenario.

All of these measures are related to actions initiated by President Trump as he tries to advance his economic and political agenda on the world scene.

Two of the measures are disruptive in that they reverse long accepted policies of previous American administrations. A third pursues a program that might accelerate the attainment of a long pursued effort of stabilizing a region.

As of today and, in particular, these three major events are (1) The economic measures pertaining to trade, which are provoking the possibility of a trade war among the economic powers. (2) The Trump administration’s rejection of the Iran nuclear deal. And (3) The Trump-Kim Jong-un summit which promises to denuclearize the Korean peninsula.

For this year, these three events are likely to have an influence on the world economic scene in different ways. All have important implications on the economic landscape of many nations, the Philippines included.

We discuss these developments in reverse order to give primacy for the most current of all.

The Trump-Kim summit. As I write, the summit is taking place. This is an amazing development because it is hopeful and, yet, it is still full of danger if it fails.

Just a few months ago, the two leaders exchanged invectives, insults, and hot exchanges of words that would have foretold of an increasingly hostile scenario.

About a year ago, North Korea became successful in developing nuclear weapon and missile-carrying capacity. With that fact in mind, nuclear miscalculation was all too real, given the threatening belligerence of the principals.

At one point, President Trump threatened to “unleash fire, fury, and power the likes of which this world has never seen before.”

The Winter Olympics was held in Pyongcheang, South Korea in February. That event became a lucky agent for fostering contacts between North and South Korea.

I have no means of knowing today whether those meetings helped to turn the potential for war into greater prospects for peace. What the world has witnessed is that the meeting between the leaders of the two Koreas was cordial, and that shortly after that meeting, an invitation for a meeting from Kim Jong-un to President Trump (which was readily accepted) was made on March 8.

Moreover, when the scheduled summit was abruptly called off by President Trump, it seemed that President Moon Jae-in of South Korea interceded to make it happen. He must have been an effective messenger for the North Korea leader, after reading his mind.

What can we expect from this summit? It could simply be a photo opportunity for two leaders who want to be recognized. There is cautious optimism that this summit might work to pave the way to a programmed period in which “denuclearization of the Korean peninsula” would be in place. In that case, economic development for the North Korean people might follow peace and regional stability.

If this happens, the path for North Korea would be to join the family of peaceful nations over the long haul. In assessing that prospect, the idea that the two Koreas might one day become one country is not in the cards.

Assuming, however, that the path of peace is defined, that question would be an issue for the two countries to chart over the long term, but not in the near future.

The Iran nuclear agreement: How will it unfold? The Iran nuclear deal is a major irritant in the relations between the US and its European allies.

The US witdrew in May from the Iran nuclear deal that it was part of since its signing in 2015. The Iran nuclear deal was seen as a verifiable commitment to prevent Iran from becoming a nuclear military power.

The US withdrawal from the Iran nuclear agreement will create more, rather than, less instability in the Middle East. The reimposition of punitive sanctions would place a heavy internal strain on Iran’s economy, creating greater uncertainty and instability in the region.

One impact of instability is on oil prices. The recent rise of oil prices has been partly associated with the new instability. Ultimately, policing of oil supplies would depend on the interaction of world supply and demand, but the Middle East – including Iran’s role – adds a share of uncertainty into the picture. Iran is has huge reserves of oil.

The withdrawal of the US from the Iran deal further puts a strain on the relationships among the economic powers and allies of the United States. The Iran deal was a multilateral effort to pursue a common goal. After achieving it, the US withdrawal marks another major instance where its leadership role has been damaged.

Counter response: Trade war. The tariffs imposed by the US on steel and aluminium products were initially introduced by President Trump to shock its trading partners into trade negotiations. To these, the immediate reaction of the partners affected was to retaliate with commensurate tariff measures.

When initially, many allies were exempted provisionally, the tone of the response of the trading partners became muted, having in mind more institutional use of trade dispute mechanisms. As it turns out, no exemptions from the tariffs are being made.

At the end of the Canada summit meeting of G-7 economic powers, a communique was agreed upon. However, President Trump (as he arrived in Singapore for his summit with the North Korea leader) withdrew support for the G-7 final communique after he had heard part of Prime Minister Trudeau’s post-meeting interview in response to the question of steel tariffs. The Canadian premier had indicated his government’s plan to impose measures to match the American tariffs.

The matter has also affected Europe. German Chancellor Angela Merkel has indicated that Europe would match the US tariffs on steel and aluminium with equal measures. Europe will follow Canada’s response to the US tariffs.

The trade war has begun,

Not being part of G-7, China’s response is still a matter that is being weighed in Beijing. High level US officials have visited Beijing trying to work out future trade measures.

My email is: gpsicat@gmail.com. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/

DONALD TRUMP KIM JONG-UN TRADE WAR
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