“WHEN some foreign nation restrains … the importation of some of our manufactures … revenge naturally dictates retaliation.”
It sounds like some trade-union protectionist, but actually this was written by Adam Smith in his Wealth of Nations, the bible of free traders. And once restrictions are installed, “freedom of trade should be restored only by slow gradations” to avoid throwing lots of people out of work.
Smith, of course, saw retaliation as a means of forcing a trading partner to end its restrictions in a process of mutual disarmament. Now, that process is played out in the World Trade Organisation and against a background of mounting Sino-US geopolitical rivalry.
After a 17.7% jump in its exports in December, China passed Germany as the world’s largest exporter. A 15% increase in imports from China helped to drive the US trade balance to the unexpectedly high level of $40.2 billion, up from $36.4 billion a month earlier. Both the EU (imports from China up 10% in December) and the US reacted with import restrictions, the EU on shoes, the US on tyres. To which China responded by restricting imports of poultry and car parts from the US, and complaining to the WTO about the 16.5% anti-dumping tariff the EU has imposed on shoe imports from China.
On one level this is all about jobs. President Barack Obama has promised to double American exports in the next five years to create 2m good, new jobs.
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