Friday 20 May 2016 3:17 am

As the US slaps a 522 per cent tariff on Chinese steel imports, should the world fear a new trade war?

Eamonn Butler, director of the Adam Smith Institute, says Yes.

Things could be much worse than they presently are. In the century to 1950, world tariffs averaged 20 to 50 per cent. Now they average 1 to 3 per cent. But protectionism ain’t dead yet. We’ve seen it aplenty from populist presidential hopefuls Donald Trump and Bernie Sanders. And – if she manages to escape indictment – Hillary Clinton will become President only by appeasing Sanders and all those Democrats who previously voted for Nader, Perot and Buchanan. That’s not good, particularly since the US is a massive trading nation. Meanwhile, EU protectionism may sink the Transatlantic Trade and Investment Partnership (TTIP), signalling the high-water mark of global free trade. Many will excuse the US’s tariff on Chinese steel as an “emergency measure” for “special circumstances”. Such claims are always the thin end of the wedge for bad but enduring policy. But it’s not just about tariff numbers. A bigger concern is non-tariff barriers, where protectionism abounds. Need one say more than “a single market in services”?

Linda Yueh, adjunct professor of economics at London Business School, says No.

It’s certainly startling that the US has imposed a 522 per cent tariff on Chinese steel. But this only applies to cold rolled steel, which accounted for a tenth of US steel imports last year. The bulk of Chinese steel isn’t subject to this tariff, and neither is most of the trade between the world’s two largest economies. This isn’t the start of a new trade war, but rather a protectionist reaction to the disruption caused by an industry undergoing a painful adjustment. As the Chinese government offers subsidies to cushion the downsizing of the sector and the unavoidable unemployment brought with it, the global impact is worsened. As a result, there may well be more tariffs in the coming months. But such protectionism is not widespread. If anything, the world is trying to agree more trade deals, like TTIP between the US and EU, and the recently concluded Trans-Pacific Partnership between the US and Asia. China is negotiating several too, because trade boosts growth, and all nations know they need more of that.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.