HOW SHOULD GOVERNMENTS RESPOND?
So how should governments respond? In an ideal world, they would all immediately stop this mercantilist meddling, which is undermining global growth. Kristalina Georgieva, the head of the IMF, has begged China to slow its export flood by stimulating domestic demand.
“If it doesn’t happen it could ironically be China, not the US, that destroys the rules-based trading system because . . . countries will be left with no option but to put tariffs on Chinese goods,” she told me in Saudi Arabia earlier this year.
Emerging markets are suffering too. “China is one of the biggest risks to our external imbalance [and] we are trying to talk to our Chinese friends about how to fix this,” Mehmet Şimşek, Turkish finance minister, told me.
But in the real world, Beijing is unlikely to change policy and the US equally unlikely to drop its tariffs. After all, the IMF calculates that if the 2015-2023 Chinese subsidy trends continue, “China’s electronics exports increase by around 20 per cent over the long term”. We are in a brutally mercantilist age.
So what EU governments, and others, must do is not just contemplate tariffs, but the nature of their industrial policies too. Supporting farmers while cutting funding for science, say, is mad. So is failing to invest in a joined-up electricity grid or worker training. Let us hope that Donald Trump and his British and EU counterparts understand this. Sadly, I doubt they do.
