Yahya Madra
Mar 26 2018

Rise of neo-mercantilism and steel tariffs in Turkey

On Thursday, U.S. President Donald Trump's administration announced that, in addition to Canada and Mexico, it will exempt the European Union and four other allies — Australia, Argentina, Brazil and South Korea — from steel and aluminium tariffs that took effect on Friday. Conspicuously absent from the list of exempt countries were Japan and Turkey.

While Turkey has so far remained more or less silent, Japan appears to have taken the news very seriously. The New York Times reports that analysts interpret Trump’s choice to leave Japan “off the exemption list as a negotiating tactic to try to force it into bilateral free-trade talks”.

Japan, with $1.8 billion-worth of steel in 2017, is the largest exporter of steel to the United States to be left off the exemption list.

But given that the list of exemptions includes the top five exporters of steel to the United States, the protectionist measures will have a rather limited impact on the U.S. economy. If these tariffs are not intended to have  immediate economic impact, what is their real significance?

Commentators say Trump pushed for these tariffs to demonstrate publicly that he is delivering on his campaign promises. This is probably true. But it is also a well-known fact that he is surrounded by a gang of economic nationalists who are keen on punishing China for that they see as its neo-mercantilist policies.

In August 2017, Steve Bannon, just before he was forced to resign from his advisory position at the White House, gave an unexpected interview to Robert Kuttner of the American Prospect, a progressive and pro-labour journalist who is known for his critical stance towards neoliberal globalism. In the interview, Bannon told Kuttner that “you and I are in the same boat when it comes to China” and announced with his usual bravado that “we are at economic war with China”.

This suggests that the Trump Administration is keen on steering the U.S. economy in a neo-mercantilist direction. By neo-mercantilism, economists usually refer to what China has been doing for decades, namely a trade policy that seeks to generate a trade surplus. The Chinese government conducts this neo-mercantilist trade policy within a system of state capitalism. Through a state-led financial sector, the Chinese government channels funds to preferred capitalist corporations, subsidising the export-oriented sectors and simultaneously protecting domestic market-oriented ones.

The Trump administration, still following the action plan that Bannon laid out in his interview with Kuttner, seems to be making a foray into an economic war with China. In addition to tariffs that are said to be levied in response to China’s steel and aluminium dumping, the United States has announced it will take action at the WTO against “China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation”. 

So, it all seems to be about China. But, then again, it isn’t. The list of exemptions did not include Japan, Russia, Turkey and other relatively minor exporters of steel and aluminium. While Japan appears to be ready to engage in further negotiations, what has Turkey’s stance been?

Two weeks ago, in an op-ed that addresses the crisis of neoliberal globalisation, President Recep Tayyip Erdoğan’s chief economic advisor Cemil Ertem wrote that “Ankara will take its own measures against both the customs union with the EU and other U.S.-based protectionism.”

What those concrete measures will include remains to be seen. In a recent interview, again given before the U. S. list of exemptions was announced, the chairman of Turkey’s Steel Exporters’ Association, Namık Ekinci, said that if the tariffs were to be imposed across the board, they would not have an adverse effect on Turkey’s steel exports to the United States. But now, , countries exempted from tariffs will have a competitive advantage over those that are not.

In response, if they wish to retain their share in the U.S. market, Turkey’s steel exporters must cut their prices. This will only be possible if they are willing to accept lower profits, or if they can pass the effects of the price cut onto workers (e.g., lower wages, less spending on workplace security, or increased labour productivity), or a combination of both — unless the Turkish government decides to provide export subsidies to offset the adverse effects of the tariffs. This is how trade wars begin.

In a recent statement to the House Ways and Means Committee, U.S. Trade Representative Robert Lighthizer lamented that “too many WTO members view it as a litigation forum, and not a negotiation forum”.

Mirroring the sentiments of Trump’s nationalist economic advisors, Ertem also thinks that the WTO and EU are not up to the task of building “a new global trade system”. This new trade system, Ertem argues, should put an end to the “historical hypocrisy” of developed economies that “want liberalism only for themselves” and should incorporate into its regulatory framework “the economic and commercial interests of developing countries” as well.

This all sounds fine. But there is something that does not add-up in Ertem’s narrative. Ertem wants to repeat China’s transition from a policy of creating a trade surplus based on labour productivity and transfers from the agricultural sector to one based on the export of high-tech goods. Yet this policy was possible precisely because, for decades, the U.S. government responded softly to China’s aggressive neo-mercantilist policies (e.g., currency suppression, imposition of technology transfer, disregard of intellectual property, lax labour and environmental standards).

In a world where all actors, especially advanced capitalist centres, are becoming increasingly neo-mercantilist, the prospects of getting ahead through neo-mercantilism will be much more limited.