Global alarm bells sound over full-blown trade war

WTO chief warns Trump not to spark first trade war since 1930s after US president talks up tariffs.

Fears of the first full-scale tariff war since the 1930s have been raised by the head of the World Trade Organisation, in a direct warning to Donald Trump that his proposed levies on steel and aluminium will trigger a domino effect that will lead to global recession.

In a sign of growing international alarm at the possible consequences of Trump’s protectionist measures, Roberto Azevedo, the WTO’s director general, said “in the light of recent announcements on trade policy measures, it is clear we now see a much higher and real risk of triggering an escalation of trade barriers around the world”.

The US president responded to Azevedo’s warning – and a separate call from the Paul Ryan, the Republican speaker of the House of Representatives – by saying he would not back down on last week’s threat to put a 25% tariff on steel imports and a 10% tariff on aluminium imports.

Trump rejected the idea that his measures – announced as a way of defending America’s national security – would lead to a trade war, even though his announcement has already prompted the threat of retaliation from the European Union, Canada, Brazil and China.

Azevedo told a tense meeting of WTO members in Geneva that “an eye for an eye will leave us all blind and the world in deep recession”.

Tit-for-tat protectionism was a feature of the 1930s as countries sought to find ways of helping domestic manufacturers through the Great Depression. “We must make every effort to avoid the fall of the first dominoes,” Azevedo said.

WTO officials said the EU, Mexico, Japan, Australia, South Korea, Canada and India were among the members at the meeting expressing “very strong concerns” about Trump’s proposals.

Pressure on the White House was increased by Ryan, who said the risks to the economy meant the president should halt the planned tariffs.

“We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan. The new tax reform law has boosted the economy and we certainly don’t want to jeopardise those gains,” said AshLee Strong, a spokeswoman for Ryan, the leading Republican in the House.

Trump hinted that he might be using the threat of tariffs as a bargaining device in his attempt to renegotiate the North American Free Trade Agreement (Nafta). He said Mexico and Canada – other members of Nafta – might be exempted from the levies if they offered the US a better deal.

Andrew Kenningham, chief global economist at Capital Economics, said the flimsy national security reasons cited by Trump as justification increased the risk of retaliation.

“The real worry is that this marks a turning point in US trade policy, away from bluster and brinkmanship towards actual protectionist measures.

“We have consistently warned that this would become more likely as the mid-term and presidential elections approach. If so, President Trump may discover that there are rarely any winners from trade wars.”