The free world countries
are becoming increasingly worried about the U.S. protectionist
policies that initiating chaos in the international trades and weakening the
global institutions such as the World Trade Organization(WTO), and
International Monetary Fund(IMF).
These institutions were
established in the 1940s to regulate, monitor, and expand the international
trades. They have governed the international trades since then and have become
powerful and well settled global organizations. But President Trump’s Anti
Global and “protectionism policies are challenging the governance and
authority of these institutions. So, the concern about the sustainability of
the current world order is increasing due to the imminent clash between
institutionalized globalists and the US protectionists such as President
Trump.
US administration is talking
about fair trade vs. free trade and unilaterally push for renegotiating the
multilateral trade agreements such as NAFTA. It is claiming that it has been
taken advantage of by almost every country during the last decades which must
be stopped and compensated Although most of the analysts believe that the
Trump protectionist views will not prevail, but they might also ignite a trade
war and ends to chaos in the world order and hurts the consumers particularly
those in the small countries.
Soon after his
inauguration, President Trump withdrew from Trans-Pacific Partnership (TPP) and
started talking about fair trade vs. free trade, criticizing the multilateral
agreements, saying they have hurt American interests for decades and asking for
bilateral agreements and renegotiation the existing agreements such as NAFTA.
On Thursday, March the
first, Mr. Trump suddenly announced 25% tariff on steel and 10% on imported
aluminum. This announcement was not welcomed by the US allies and some
influential cabinet members. The US allies warned of a trade war. The
secretaries of state and defense warned that it could endanger the US national
security and his chief economic advisor “Gary Cohn “resigned in opposition to
the president style of "Protectionism".
But he did not back off,
and on the 8th of March, he signed an "executive order” based on which a
broad tariff on imported steel and aluminum was initiated unilaterally. A
controversial move that threats the world trade order and if continues it might
create a deep global chaos. Canada & Mexico were exempted temporarily to
see if he can get a good deal with NAFTA negotiations. The US administration
also left the door open for its allies to negotiate for tariffs exemption.
Apparently, he has taken the tariffs as a hostage to push for bilateral new
agreements.
The World Trade
Organization is the largest organization in the world with 164-member
countries. Its main mission is to ensure the global trades are running smoothly
and freely and all members are complying with the rules. WTO is the only
authorized institution that settles the disputes between the parties in case a
country violates the rules. Naturally, the "protectionism" policies
tend to ignore the international trade rules monitored by the world trade
organization(WTO) and unless for any reason the Trump’s " protectionism”
policies stop, the WTO will have to engage and stands against the US policies
and protect its member countries which will be in dispute with the US
administration in the coming months.
If the Trump's " Protectionism" model and
the world "Anti Globalism" movements help the populist nationalist
leaders to gain power in the coming years and if they also choose to change
their trade policies and get out of the international trade treaties. Then the global
institutions such as WTO and IMF will face a big governance challenge and the
globalists who have been running the global economy for the last 75 years will
have to compromise and let a different regime of global economy replaces the
current one. But during this economic regime change, the world could reasonably
expect all kind of financial and national debts and currency crises as
well as economic recessions and global depression. In other words, if the
current global trade order changes, the global economy will experience a period
of chaos and faces different crises before the new regime of international
trade is fully operational.
However, the
institutionalized globalists are very powerful, and it is hard to imagine that
one single country such as the US could threaten the world trade order. A
coalition or group of many countries might be able to change the current world
trade order, but most of the countries are satisfied with the current trade
order and reluctant to change it.
while no one could guess
how far the trade disputes could go in the future, but the US trade policies
surely influence all kind of financial and physical asset prices in the coming months,
so we should stay alert and monitor the asset prices trends and unusual
fluctuations to avoid any financial loss and take advantage of the asset price
fluctuation in 2018
March 12,
2018
Mahmoud Gonabadi
Ph.D., FCSI, CIM, FMA
Fund & Wealth Manager
