The G20 was defined as the principal platform of global economic governance in the aftermath of the global financial crisis in 2008 as a reflection of the need to conduct a collective crisis-response strategy at the time. While the global crisis exploded in the U.S. sub-prime mortgage market and then spread to Europe and the emerging economies, a coordinated response strategy was devised that will encourage all stakeholders to share the burden of reestablishing stability and providing liquidity to the international markets. The G20 was among the few grand projects that President Obama took over from George W. Bush and continued unabated during his two terms as the U.S. President, since the collective action spirit of the group was in perfect conformity with the coordinate crisis response strategy, as well as the positive image that the U.S. wanted to disseminate globally.

In the early post-crisis years, the G20 was presented as the highest international platform to formulate common strategies aimed at ensuring stability in global trade and financial markets. It was also construed as an inclusive forum on which key political leaders from both the global and emerging powers might come together with representatives from the main regional organizations in order to produce multilateral solutions to pressing global problems. To its credit, the G20 contributed to crucial improvements in the governance of global finance by supporting macro-prudential policies, enlarging the IMF’s lending capacity and increasing transparency procedures of banks and financial institutions in international markets.

However, for the BRICS countries led by China and India, the G20 process carried a much deeper symbolic value in terms of the reconfiguration of the global system. The G20 Summits represented a perfect opportunity for these countries to express their grievances and objections concerning the uneven architecture of global governance, while demanding more say in the running of international political and economic institutions. Likewise, representatives of the developing world were able to raise their voices at the G20 concerning unfair practices in global trade and finance regimes, while pushing for structural reforms at the IMF, World Bank and the WTO for more inclusive and fair development.

However, as the intensity of the global financial crisis faded away and especially as the U.S. economy began to display a robust performance, the expectations of Washington and its main allies from the G20 process were significantly curtailed. The U.S. administration itself did not take the macro-prudential regulations produced by the G20 very seriously; while the institutional reform initiatives for voting and representation at the IMF were never materialized. The U.S. maintained its veto power at the IMF and despite all criticisms the uneven distribution of voting rights among the global and emerging powers were preserved in almost its original form. Moreover, comprehensive transformations took place in the global architecture of world politics and domestic political stages of key global players, which significantly weakened the common agenda of participatory governance at the G20.

As the intensity of the global financial crisis faded and as the U.S. economy began to display a robust performance, the expectations of Washington and its main allies from the G20 process were significantly curtailed. 

The unilateralism of the Trump administration, which was expressed through withdrawal from multilateral international regimes and regional organizations, neo-protectionist economic policies and trade wars, triggered widespread perceptions that the major sponsor of the G20 has cut its support to multilateralism. Moreover, rising geo-political tensions between the U.S. and Russia in critical conflict zones increasingly led to the adoption of hard-power assets, leading some observers to conclude that the prospects of physical military confrontation are higher than the Cold War. Finally, the rising tide of neo-protectionism and trade wars between the U.S. and China heightened concerns regarding the future growth potential of the world economy and the prospective trajectories of global trade and finance. To sum up, American unilateralism, rising tensions between Washington and Moscow in geo-political matters, and trade wars between Washington and Beijing contributed to pessimistic expectations on the eve of the Buenos Aires Summit.

The official theme of this year’s Summit was determined as ‘Fair and Sustainable Development’ with sub-themes on energy efficiency, environment protection, development financing, digital economy, excess steel-production capacity, and modern agriculture. However, key problems in the world economy remain in need of global attention which include the shortage of development capital required to maintain major infrastructure investments. As the development of finance resources of the World Bank are not enough to spur global growth, the entrance of the Asian Infrastructure Investment Bank and the New Development Bank to the scene must be welcomed developments. But the U.S. and the Western world are generally suspicious of China’s intensions for global dominance, which causes a cautious reception to the financing opportunities that originate from Beijing. Structural reforms in macro-economic policy making and governance are also needed to rejuvenate global growth dynamics. Objectivity of international credit ratings agencies and prudent regulation of financial markets also constitute other areas of major concern.

Rising geo-political tensions between the U.S. and Russia in critical conflict zones has increasingly led to the adoption of hard-power assets, leading some observers to conclude that the prospects of physical military confrontation are higher than the Cold War. 

Another area of friction that attracts attention concerns ongoing trade wars between the U.S. and China that carry the potential of undermining global growth prospects via deeper and wider confrontation. Neo-protectionism and trade wars which gained momentum via tough political rhetoric, accusations of industrial-technological espionage and sharp tariff increases between Washington and Beijing across a range of sectors raised concerns among the major players of the world economy. On the eve of the G20 Buenos Aires Summit, it looked like Trump was adamant to force China into a corner by using the trade wars card so that he could elicit the best possible deal from them. But if Chinese President Xi Jinping does not offer big enough trade concessions in bilateral negotiations in the future, it is pretty likely that nothing concrete will come out from the G20 proceedings and the agenda of trade wars will be carried towards an indefinite future. As the U.S. economy continues to break historical records in growth, employment and productivity figures and China begins to struggle to maintain the momentum of its export-led growth strategy, a prolonged agenda of trade wars might trigger wider destabilizing effects that might hurt all emerging economies.

The G20 Buenos Aires Summit was shadowed by the new trade deal signed between the U.S., Mexico and Canada (or the so-called US-Mexico-Canada Agreement-USMCA), which was carved out to replace NAFTA via intensive U.S. diplomacy. The message that President Trump tried to give to the global audience through the USMCA was that the U.S. will redefine the conditions of its bilateral and multilateral dealings on the basis of a renewed notion national interest, rather than concerns for regional or global stability.

If Chinese President Xi Jinping does not offer big enough trade concessions in bilateral negotiations in the future, it is pretty likely that nothing concrete will come out of the G20 proceedings and the agenda of trade wars will be carried towards an indefinite future. 

Over the course of last two years, the global image of the U.S. has already been significantly tarnished thanks to the controversial steps towards the NAFTA partners; decision to construct a wall on the Mexican border against migrants; threats towards NATO partners and the EU; withdrawal from various UN platforms, as well as the Paris Climate Accord. The tendency of the U.S. to act in disregard for international law, established norms and previous commitments might trigger collective responses from the EU, China, Russia and emerging powers against unilateral sanctions and trade wars.

While observers will wait for signals of a rapprochement between the U.S. and Russia on the Ukraine crisis, and a trade deal between the ‘G-2’ of the U.S. and China to end the vicious circle of trade wars, swift progress on both counts in the near future remain unrealistic. The new world of multi-polarity will be characterized by issue-based confrontations that are bound to continue.         

Ten years has passed since the Lehman Brothers went bankrupt. This was the tipping point in which the American mortgage meltdown turned into a global economic catastrophe. The Global Financial Crisis (GFC) hit the world economy sorely. Economic growth slowed down drastically, unemployment rates and income inequality increased, which paved the way for the rise of far-right politics, the purchasing power of ordinary people decreased significantly, and any trust left in institutions collapsed.

Four major global central banks – the FED, European Central Bank (ECB), Bank of England, and the Bank of Japan – injected around $13 trillion in order to revive economic activity since the GFC. Economic growth figures have improved in the last couple of years. However, it is questionable as to whether the real economy and the banking system will stand on their own feet, and whether this growth performance is sustainable at a time when the FED is increasing interest rates and the ECB is going to end quantitative easing (QE) soon. The money pumped into the global economy has not been channeled into productive areas such as R&D, education, or infrastructure, but rather has been used mostly for bailouts and stock buybacks. Quantitative easing programs of central banks inflated asset prices artificially, leading to a big stock market bubble, which is expected to burst soon. Banks preferred sitting on a lot of cash, driven by the QE, instead of providing credit to ordinary individuals and small and medium-sized firms. While the U.S. was late in implementing counter-cyclical fiscal policies, some EU countries took austerity measures. All these policy mistakes caused an increase in income inequality and made economic growth performances fragile.

The unemployment rate in the U.S. declined to 3.7 percent in September 2018 – the lowest rate since 2000. While many economists and analysts interpret this figure as the reflection of a strong American economy, the reality is that the job market is not in a perfect position, as is suggested by many. The real wages of the middle-class have stagnated for decades. The quality of jobs has decreased. People cannot find full-time jobs that they desire, and have to work in more than one part-time job in order to balance their budget. On the other hand, some people get tired of looking for jobs so desperately and leave the labor market, which means that they are not officially considered unemployed.

Many structural reforms related to the financial industry, promised by the G20 leaders, have not been implemented yet. Too-big-to-fail banks have even added to their growth in 10 years. U.S. President Donald Trump is now trying to dismantle the Dodd-Frank Act, a comprehensive financial markets regulation to control systemic risks. The oligopolistic structure of international credit rating agencies has still not been changed. Some European banks still suffer from band loans problems. The IMF’s capacity to combat a fully-fledged global crisis is questionable, even after some belated reforms that were implemented after the GFC.

Global debt ballooned almost 50% after the GFC, climbing to $247 trillion in total. As interest rates are rising on a global scale, concerns about the repayment of this debt are also increasing. The total debt of the non-financial sector has skyrocketed since the GFC, especially in developing countries. This situation has been reducing the risk appetite of foreign investors towards developing countries, which in turn increases the volatility of their currencies and reduces their economic growth rates.

Global imbalances, especially savings-investment imbalances in the U.S. and China continue to pose some threats to the stability of the global economy. Thanks to its newly rising middle-class, China has been diverting its growth model from an export-led to demand-led one in the past years. However, China still provides a huge amount of trade surplus, and it will take years to balance its domestic demand and national savings. The U.S. on the other hand, has both a public and trade deficit. While Trump’s tax reform is likely to increase the public deficit, his trade war plan will not work to reduce the trade deficit.

The trade war, fired up by the Trump administration, puts global trade and global value chains at risk, causing a decline in global economic growth forecasts. Trade disputes will not provide any benefit, but will only hurt global economic activity. Although there are many unfair issues in multilateral trade agreements and the WTO rules, international trade has increased global economic growth, has reduced global inflation, and has lifted millions of people out of poverty. Global leaders, bureaucrats, and intellectuals should focus on making the rules of the trade game fair, not on bringing the system down in ruins.

In the end, we cannot draw a rosy picture about the future of the global economy. As economists, we do not have a crystal ball that allows us to foresee the future more clearly. However, all these risks and fault lines indicate that the global economy may experience a shocking turbulence, or even a recession, in 2020 or 2021.

Beside this, as Trump said in his UN speech last month: “We reject the ideology of globalism and we embrace the doctrine of patriotism.” The world is switching from pure globalism to one in which countries will try to protect their own industries as much as they can in order to increase value added growth, create more jobs in their territories, and balance their current account. Trump assumes that implementing new protectionist actions will bring giant factories back to the U.S. and provide some competitive edge against developing countries such as China, which have the potential to reduce the share of the U.S. in the global economy. This can be a topic of a different article, but we can shortly mention that such protectionist periods offer more opportunities for developing countries, which use smart industrial policies to produce technological products themselves and give them the opportunity to catch up with developed countries. The East Asian miracle is a good example of this. Countries that prepare themselves for this new period in advance by taking precautionary measures and implement appropriate policies in line with the spirit of time will increase their weights in the global economy.

Following U.S. President Donald Trump’s tweet, “Trade wars are good, and easy to win,” in March, additional tariffs on products imported from China officially began in July. The U.S. introduced an additional 25 percent tariffs on Chinese products worth $34 billion. Trump even stated that he could obtain an extra 500 billion dollars with this move.

A huge trade deficit

When the trade figures between the two countries are looked at, China is expected to be worse off in the short-term, with an estimated $15 trillion economy. According to figures U.S. trade authorities issued in 2016, China’s total foreign trade volume (imports and exports) to the U.S. amounted to $578.2 billion. $115.6 billion of this amount was sold to China and $462.6 billion was purchased from China. This shows that the U.S. has a trade deficit with China at a level of $347 billion.

“Trumpian response”

The reason for the “trade war” between the two largest economies in the world is due to the fact that Trump announced an increase of tariffs – 25 percent on steel and 10 percent on aluminum. The first part of the $50 billion was implemented on Chinese technology products due to “technology abuse and unfair trade practices.” In this decision, the Trump administration relied on Section 301 of the Trade Act of 1974, which aimed to prevent what it claims are unfair trade practices and theft of intellectual property. This legislation gives the president the authority to unilaterally impose fines or other penalties on a trading partner if it is deemed to be unfairly harming U.S. business interests.

The additional 25 percent tariffs targeting China’s defense, aerospace, and manufacturing sectors include 818 products worth $34 billion – including nuclear reactors, gas turbines, air and gas liquefiers, furnaces, and commercial dishwashers. China is expected to re-engage in additional tariffs on U.S. products as retaliation. Trump complained about the fact that U.S. automotive producers paid a 25 percent tariff, while Chinese firms conducted the same job and only paid 2.5 percent.

Against Trump’s policy, China retaliated in a similar manner. In the final stage, the two countries mutually agreed to apply customs duties of 25 percent on imported goods worth $16 billion. Thus, the total volume of products covered by additional tariffs in mutual trade have increased by $50 billion. Preparations are underway in order to expand additional customs to include other products.

The rise of protectionism

While the trade war continues, opportunities for negotiations have not been completely removed. It is possible for Trump and Xi to meet at the G20 to be held in Argentina in November, and to keep track of the outcome after these bilateral talks. However, it does seem difficult to reach a solution in the short-term.

While the “winner” of this trade war between the U.S. and China is uncertain at this time, it is highly likely that this will affect the global economy. This is because mutual taxes are often linked to world supply chains – which means that the prices of many products around the world can suddenly increase. Given that the U.S. adopts tariff regulations as a bargaining item not only against China, but also the EU, Russia, and Turkey, a political and economic isolation of the U.S. is not unlikely. According to the American Chamber of Commerce (ACC), 74 percent of the members of the ACC are still planning to expand their investments in China.

Protectionism itself is behavior against the very principles of the G20. The U.S. is essentially going against the principles that it once advocated and guaranteed under the global financial system, including the World Trade Organization. More, Trump’s protectionist stance is not only applied in economics, but in the fields of politics and culture too. The Muslim Ban is a perfect example in assessing how Trump mixed these two spheres in his very early political actions. The “huge wall” to be built across the Mexican border is another example. In addition to all these, a recent row was encountered due to Trump’s announcement of extra tariffs on imports from Canada.

Moreover, as we have seen in the Pastor Brunson case, Trump insisted on using this protectionist stance as a coercive diplomatic tool. With these in mind, it is not difficult to state that Trump’s America is going against the liberal values the country once promoted, and may become unrecognizable soon. To put it bluntly, Trump does not hesitate from treating partner countries like enemies. Even though these policies adopted by the president increases his popularity among the blue-collar American voters who are suffering from globalization, they are at the same time in direct conflict with the greater interests of the country.

A dangerous model

China, which holds the leadership in production in many sectors, is defined as the “production base of the world.” Worldwide, 90% of automobiles, 80% of computers, 50% of refrigerators, and 41% of vessels are produced in this country. With a population approaching 1.4 billion, foreign investment is attracted to the country due to the advantage of cheap labor. With this advantage, China has unbalanced trade relations with many countries. It is therefore reasonable for these partner countries to develop commercial measures against China.

As China continues its economic development by making use of the free trade system, Trump’s stance has been interpreted as the rise of protectionism. It is quite ironic to now mention the country once seen as the symbol of free trade as one implying protectionist measures. However, the president insists upon using tariffs as a tool in response to the rise of China. What is important is that Trump’s protectionist policy is a “bad example” for other partner countries with unbalanced trade relations with China.

Triggered by various motives, Trump’s protectionist policies against Mexico, Canada, China, the EU, and Turkey, hurts the conventional political economy of the U.S. based on the global free market regime.

Behaviors of U.S. President Donald Trump occupied the 44^th G7 summit held in Canada this year, which had a distinct atmosphere compared to previous summits held every year. Trump’s uncompromising attitude and his announcement regarding U.S. withdrawal from the Paris Climate Agreement, which he made during the summit in Italy last year, have led some to argue that the G7 is effectively becoming a G6.

One should note that several decisions made by President Trump, such as withdrawing from the Trans-Pacific Partnership (TPP), the Paris Climate Agreement and the nuclear agreement with Iran (JCPOA), opening NAFTA for renegotiation, putting negotiations regarding the Transatlantic Trade and Investment Partnership (TTIP) on hold and recognizing Jerusalem as the capital of Israel has led to deep differences of opinion between the U.S. and other G7 countries. In addition, his recent statement regarding the fact that his policy of imposing a 25% tariff rate on imported steel and 10% tariff on imported aluminum would include the European Union, Canada and Mexico by June 1, 2018, has been met with great reaction and anxiety among the Western allies of the U.S. Following this decision, which would affect the current balance of international trade, the rest of the G7 countries tried to persuade the U.S. administration to abandon this policy in order to avoid disrupting the liberal economic order.

As a reaction to Trump’s policies, 29 ambassadors from the EU sent an open letter to the president on the first day of the summit. The letter stated that the trade and investment relationships between the U.S. and the EU have been a win-win for both parties for years; the U.S. has benefited from its trade with the EU more than anyone else. Furthermore, the letter suggested to cooperate against China. Prior to the G7 leaders’ summit, the finance ministers of the six-member countries also repeated the call to withdraw tariffs. Thus, the main subject during the G7 summit was the heavy tariffs imposed on steel and aluminum by the U.S. President.

During the summit, Canada, the biggest trade partner of the U.S., made several attempts to resolve the situation to no avail. With close inspection, one can see that Canada exports an important amount of steel and by itself provides over 50% of U.S. aluminum imports. Attempts to open negotiations made by the Canadian Prime Minister led to heated exchanges between the U.S. and Canada. After Trump’s accusation of “backstabbing,” several high-ranking U.S. bureaucrats also targeted Trudeau with heavy accusations and criticisms. Trudeau, accused of being unfair by Trump, stressed the fact that Canadian workers, just like American workers, needed to be protected, and reminded Trump that he ought to be a fair-trade partner. Following his press conference with Trump, Trudeau stated that Canada will also impose new tariffs on July 1 in retaliation to the U.S., signaling that the protectionist policies of the Trump administration will not go without response.

Western allies, who had hoped to persuade Trump during this year’s summit, failed to achieve any progress and the summit revealed the fractured state of the western bloc. The fact that the other six countries of the G7 cooperated against the U.S. and made joint announcement signifies that the trade war sparked by Trump will not be one-sided. While such a trade war in a situation where countries compete against each other will not have any winners, it has the potential to cause a global recession and to negatively impact the prosperity of the world.

When we take a look at the statistics of trade between the G7 countries, an interesting picture emerges. More than one third of the U.S. $568 billion trade deficit as of 2017 was due to its trade with G7 countries. The fact that the U.S. is running trade deficits with all G7 member countries except from the United Kingdom provides important context for the merchant attitude displayed by Trump during the summit.

The Shanghai Cooperation Organisation (SCO): A new organization versus a divided G7

The protectionist policies adopted by Trump are hurting Asian countries as much as they are western countries. Following the election, the Trump administration focused on competition with China and forced the Western world to act in cooperation. Stating that allies who do not act in accordance of this particular vision should not count on the U.S. for further support, Trump has illustrated that the U.S. is aiming for a bilateral competition with China, and that the U.S. no longer wants to finance the liberal world. Trump’s “Russia should’ve been here” statement during the G7and his tweets following his early departure were highlights of the event. Some even claimed that Trump’s behavior is aimed at destroying the Western alliance.

The fact that on the same day of the G7 summit another summit was being held on the other side of the Atlantic by the Shanghai Cooperation Organization supports this theory. With messages promoting cooperation and unity at a time when Western allies are bickering among themselves for economic gain, the SCO – which claims to be an alternative bloc to the West – signaled to the world that a new center of power now exists. Putin’s emphasis on the rising economic power of the SCO especially drew attention. In reference to the SCO’s combined economic power – over $15 trillion – which totals to 20% of the world economy, the Russian President claimed that the SCO is stronger than the G7 in terms of purchasing power parity. One can appreciate how bright the future of the SCO compared to the G7 by noting that China and India – the two fastest growing economies in the world – will account for 40% of the global GDP growth in the next 10 years. While undoubtedly, this organization should not be expected to succeed in the immediate future, its claim of being an alternative to the Western alliance should not be underestimated. In opposition to the West, which is experiencing clashes of economic interest, the internal harmony displayed by the SCO illustrates that it is a new focus of power.

Deepening divisions among the West and the Rise of Asia

The G7 summit ended tensely after heavy criticisms directed to Canada by the U.S. President and his decision not to sign the joint statement at the end of the summit. The disagreements on trade not only failed to be resolved during the summit, but even grew tenser. President Trump and his advisors, following neo-mercantilist policies, state at every given opportunity that they will put their national interests first, disregarding international norms and thus following protectionist and one-sided approaches. Similarly, the Trump administration does not hesitate to repeatedly declare that they do not want to finance the liberal global order. Therefore, the grounds that justify the superiority of the U.S. in the current global order are now being debated more than ever. Trade wars seem inevitable in a global atmosphere such as this, where political balances are shifting profoundly. If other countries were to react in cooperation to Trump’s continued protectionist policies, this would be met with great anxiety in the global economy and the implementation of such reactionary policies may cause trade wars on a global scale.

On the other hand, the U.S., while adopting more aggressive policies after the incredible economic rise of China, is also shifting its military presence to the Asia Pacific, and is adopting protectionist policies in order to maintain its economic superiority in the global arena. Trump is acting destructively in his economic and political relations with the West. However, he is more constructive and cooperative when it comes to relationships with Asia. Within this framework, it’s important to note that Trump left the G7 summit early to meet with North Korean leader Kim Jong-Un. So, Trump, in his attempt to undermine China’s hegemony in the Asia Pacific, is harming the Western alliance. The policies that the two leading global actors such as the U.S. and China – who have become referred to as the G2 – will implement against each other, can trigger multifaceted trade wars.

On March 22, 2018, the Chinese embassy in Washington stated, “China would fight to the end to defend its own legitimate interests with all necessary measures. China is not afraid of and will not recoil from a trade war.”

On April 3, 2018, the Trump administration published a list of 1,300 Chinese products exported to the U.S., which will be subject to tariffs worth 50 billion.

It is important to understand what a trade war is. A trade war, by definition of economists, begins when a second round of reciprocal tariff imposes occur.

This second round now signals more powerful. As a retaliation to the U.S., Beijing has announced that it will impose 25% tariffs on 120 U.S. exports, which is worth around 3 billion U.S. dollars. Following this, President Trump once again signaled further tariffs on Chinese goods that will be worth “100” billion U.S. dollars.

The history of trade wars

As the upcoming U.S.-China trade war gets closer, knowing what happened during previous trade wars is important. One of the tariffs that the U.S. imposed in 1930 was the Smoot-Hawley Tariff Act.

This Act raised the tariffs on 20,000 imported goods in order to protect U.S. businesses and farmers. Of course, other countries retaliated these tariffs and this Act was believed to have exacerbated the Great Depression. Remember what followed the trade war and great depression… the Second World War.

Another example of this were the Reagan tariffs imposed on Japan in the 1980s. During his presidency, Reagan viewed Japan as a big problem. Once he was elected president, his administration restricted auto imports from Japan and imposed punitive tariffs. Even though Reagan was partly successful, it would be ambitious to compare Japan to China.

Reasons behind US moves

The U.S. has been the economic and political hegemon of world politics since the bipolar world order and was the hegemon power of the West during the Cold War. However, China has increasingly been challenging this hegemony in economics. Thus, one reason behind these tariffs is to protect the U.S. position in global economics, slow down the rise of China and strengthen domestic producers.

Another reason could be China’s behavior. China is growing rapidly by imitating and free-riding the liberal economic world. What President Trump emphasized and targeted are these features of the Chinese economy. More, it is obvious that the Trump administration no longer wants the U.S. to take a so-called “costly role” in world politics and economics.

While what is going on is clear protectionism, it may be a little early to call it a trade war. Though the primary goal is not to pick a trade war, this mutual display of strength raises the fear and possibility of one.

The protectionist economic policies pursued by the Trump administration are now signaling a global trade war. In the early days of March 2018, new tariffs were taken into action by the U.S. government.

On March 1, 2018, Trump announced that his administration will impose 25% and 10% tariffs on steel and aluminum imports in order to promote struggling American industries. He announced the tariff move during a meeting with steel and aluminum executives at the White House.

The tariffs President Trump signed on March 9 did not apply to Canada and Mexico, which are NAFTA countries.

In his justification Trump said: “…You like the tariffs where they won’t be dumping on our country. What they do is they dump massive amounts of product on our country, and it just kills — it destroys our companies and our jobs. And it’s been happening for so many years, and we are not the beneficiary.”

Many countries reacted to the new tariffs imposed by Trump. Chancellor Angela Merkel called for the European Union to be excluded from such schemes. European Commission President Juncker made it clear that the EU trade bloc would not sit “idly” if Trump goes ahead with these planned tariffs. Trump’s new tariff threat on European cars against the possibility of bloc’s retaliation on US tariffs increased the tension more.

Besides reactions from other states, there is a strong opposition from some Republicans who are traditionally free trade advocates.

On March 22 the U.S. imposed new tariffs on China. These are estimated to be at a worth of 50 billion U.S. dollars. The Trump administration strongly claims that China is committing intellectual property theft crime and is causing the U.S. its largest trade deficit of all times – a 375$ billion trade deficit with China.

“This is the first of many. This is the number one but this is the first of many,” President Trump said just before signing the tariffs on China.

Is China the target?

Earlier in March 2018, the EU’s trade commissioner stated that the bloc would “stand up to the bullies.” Due to reactions and critics, the Trump administration announced exemptions that cover the EU and six other countries including Argentina, Australia, Brazil, Canada, Mexico and South Korea. Below we can see that out of the top 5 steel exporters to the U.S., 4 of them – except China – are exempted.

                                                  Source: Wood Mackenzie

China is going to impose reciprocal tariffs on the U.S., which are worth 3 billion dollars. The Chinese Commerce Ministry stated that this imposition is a response to the steel and aluminum tariffs imposed on China by the U.S. The Chinese government could hit the U.S. with tariffs on agriculture and vehicles meaning that U.S. soybeans, airplanes, cars and cotton could be targeted.

“China cannot be seen to be weak,” Nobel Prize-winning U.S. economist Stiglitz said in an interview.

Now that Trump has expanded his list of exempted countries from new tariffs, this brings into mind two questions: Is this protectionism only rhetoric? Is China the target?

Both sides leave ways to negotiation open. President Trump emphasized that if any country imposes tariffs, the U.S. will do the same. In the upcoming days, we will see whether the two biggest economies of the world will find a common way.

Now that the American people have made their decision, the protectionist approach employed by Trump in the election campaign matters not only for the U.S. but also for the global economy. In this sense, what the world wonders now is to what extent he will deliver on those harsh pledges. Will he continue to be the furious Trump of the campaign or become an even-tempered President when he assumes office? Or will a balance be found in between? To be honest, nobody knows the answer. However, the arguments of interest can be analyzed based on the ongoing situation and the potential risks thereby.The free trade agreements (FTA) that the President-to-be obviously despised during his election campaign would be a good starting point for this purpose. This is because Trump frequently yelled at former U.S. governments for having signed such horrible deals and causing substantial losses for the domestic economy. By the way, whenever he referred to the harms of the FTAs, he actually – consciously or not – pointed to a total of 14 agreements, which constituted 41 percent of the total bilateral trade of the U.S. in 2015. This is not a trivial dynamic, at all!

So, Trump is expected to come down on Mexico in particular, as he has been blaming the southern neighbor in a visibly bad way.

On the other hand, the FTA that Trump levied the toughest war on during the campaign period was admittedly the North American Free Trade Agreement (NAFTA), which was defined by him as “the most horrible trade deal ever.” So, Trump is expected to come down on Mexico in particular, as he has been blaming the southern neighbor in a visibly bad way. From an economic perspective, this can be thought to mainly stem from the relatively competitive advantages of Mexico. It is a well-known fact that there are lucrative incentives for American companies to operate in the neighboring country.

In this sense, the Mexican economy has fair concerns nowadays due to its rather concentrated market structure that is highly dependent on the demand flowing from the U.S. And beyond the bilateral trade relations, the loss of confidence and the uncertainties that have emerged after November 8 pose indirect risks for the country’s economy. However, the fact that the two economies are highly integrated in various sectors complicates the case. This is likewise the situation for Canada, the top destination for U.S. merchandise exports and a critical part of the U.S. supply chain.

At this point, it should be emphasized that based on 2015 data NAFTA accounts for approximately 75 percent of the total bilateral trade of the U.S. within its FTA portfolio. Therefore, it is evident that the U.S. has considerably strong ties with its NAFTA markets. As Canada and Mexico rank within the top three trade partners of the U.S., it will not be an easy job to put a lock on the NAFTA door from a realistic point of view. Yet it is likely that Trump will take an initiative and attempt to fix the disadvantageous terms of the deal for his country. In such a scenario, potential energy collaborations as well as the older-than-NAFTA free trade relationship between the U.S. and Canada might be a factor for tipping the balance.

Moreover, Canada and Mexico are also prospective partners for another trade deal frequently attacked by Trump: the Trans-Pacific Partnership (TPP).  As an integral part of Obama’s Asia Pivot strategy, the TPP attempts to bring 12 economies together and create a strong cooperation in the Asia-Pacific. For the U.S., it was supposed to serve as a tool against China’s increasing dominance in the region. However, Trump claims that the deal is a complicated piece of garbage that would cause losses to the U.S. economy in case it is ratified. Thus, considering also the escalated disapproval regarding the deal, it would not be irrational to expect the new President to scrap it or put it in cold storage at least. Likewise, it is also believed that the Trans-Atlantic Trade and Investment Partnership (TTIP), which is Obama’s economic project on the Atlantic front and an admittedly less mature initiative than the TPP, will probably be slowed down by the President-elect.

On the other hand, a blow to the TPP by Trump will not only deprive the associated parties of the Trans-Pacific collaboration but also will offer an opportunity for China. An American administration that turns its back on the TPP would encourage the Chinese project called the Regional Comprehensive Economic Partnership (RCEP) that aims to gather the Association of Southeast Asian Nations (ASEAN) group and six other big economies in the region under one umbrella.

Nevertheless, China also has concerns related to the new U.S. president, as it is a country frequently disparaged by him in the election period.

Nevertheless, China also has concerns related to the new U.S. president, as it is a country frequently disparaged by him in the election period. In 2015, China was the third largest single-country destination for U.S. merchandise exports while it ranked the first source for U.S. imports. While the bilateral trade between the two partners is quite robust, the merchandise trade deficit with China is known to infuriate Donald Trump. In that regard, he has vowed to declare China a currency manipulator and slap punitive duties on Chinese imports. The two countries are also known to have long-standing problems including the failure of China to respect U.S. intellectual and property rights.

Yet it is uncertain if Trump would overstep the mark and provoke China into a tit-for-tat retaliation. While the jurisdiction of the U.S. Congress will play a critical role at that point, an aggressive scenario could end up with the violation of the World Trade Organization (WTO) rules for both parties and endanger the order of the global economy as well.

To be sure, Trump is not the first U.S. presidential candidate who fed his campaign with a nationalist trade agenda.

To be sure, Trump is not the first U.S. presidential candidate who fed his campaign with a nationalist trade agenda. Yet even the uncertainties he has created so far have been enough to scare the global markets. The trade liberalization process started after World War II with the General Agreement on Tariffs and Trade and reinforced with the creation of the WTO, now seems to face the risk of losing support from its pioneering country. So, in an era where trade faces stubborn challenges, the new U.S. President’s isolationist pledges draw a grey picture for the world economy and shake economic confidence.

This addresses certain implications for emerging economies, in particular. Beyond countries such as Mexico and China, which are directly associated with Trump’s promises, those who look forward to a recovering world trade encounter some indirect risks. Turkey is one of those countries, as well. Moreover, projections on the future outlook of the U.S. economy inarguably augment the relevant risks. The sharp moves in the Turkish markets observed after November 8 indicate the significance of the matter. On the other hand, apart from the aforementioned global uncertainties caused by the U.S. election results, Trump’s relationships with the EU, Russia and Iran are also likely to produce complicated economic effects for Turkey in positive or negative ways. Everything depends on the extent to which he will deliver on his unconventionally sharp pledges. That is why the first half of 2017 will be a critical period for the actors of the world economy to figure out how the new U.S. administration will lead the way.