US President Donald Trump wears a mask as he tours a lab where they are making components for a potential vaccine at the Bioprocess Innovation Center at Fujifilm Diosynth Biotechnologies in Morrisville, North Carolina on Monday. According to data from Johns Hopkins University, infection cases in the US surpassed 4.29 million and the death toll reached 148,295 as of press time on Tuesday. Photo: AFP

"Economic aggression can have no other offspring than war. It is as dangerous as it is futile," said Henry Morgenthau Jr, then US secretary of the treasury, on July 1, 1944. He was addressing delegates at Bretton Woods to convince them to establish global institutions and rules to foster economic linkages. 

The US learned a lesson from the disastrous impacts of Smoot-Hawley Tariff Bill that was enacted in June 1930. The bill was introduced to protect American business and farming communities from the competition and slowdown of markets. The markets were impacted by overproduction, which led to disturbances of basic economic indicators. US President Herbert Hoover promised to farming communities during his election campaign that he would protect their business. Although the bill was opposed by 1,028 economists and leading businessmen like Henry Ford, the Hoover administration implemented it. The retaliation from Canada and other partner countries of the US led to quick economic meltdowns. 

Perhaps President Donald Trump's administration forgot to read this precious sentence uttered so long ago from one of the architects of Bretton Wood institutions. The history of Smoot-Hawley also could not guide the administration to avoid the past mistakes. Trump started his tenure by launching a multidimensional economic and trade war with the slogan of "Make America Great Again." The war is not only limited to competitors, but also forced onto partners and allies including Canada, Japan, EU members, Turkey, as well as India. Many others are also feeling the wrath of Trump's trade war. 

However, China is at the center of all these moves. It seems likely that the economic and trade wars were designed to victimize China. It was argued that intervention needed to be introduced in order to revive stifling business. It was presented as a cure to all ills and a necessary step. However, the argument cannot be qualified by economic rationales. History tells us that economic and trade wars always produce negative results. They contributed to destabilizing the economies, irrespective of their sizes. Smoot-Hawley is a prominent example from US' own history.

The leading economists of the US and the world are again asking Washington to stop the economic and trade wars. International institutions like the IMF, WTO and World Bank are also echoing the same. In 2018, the IMF predicted that due to the trade disputes there would be a possibility that global growth in 2020 might decrease by 0.5 percent. Morgan Stanley put forward the figure of 0.81percent decrease based on a scenario whereby the US would go for a full-scale trade war with China and other countries. The early signs of this started to emerge in 2019.

The global economy was already under stress due to negative bond yields, hit of negative interest rates and financial imbalances. It was estimated in 2019 that almost $15 trillion bonds were trading at negative yields. Germany and Japan are leading economies on this front along with others. The importance of Germany and Japan in terms of global market makes it a serious problem.

The US' finance sector is also not in good shape. Leading economists and experts are warning the authorities of a repeat of the 2008 financial crisis or even worse. The new bubble is leveraged loans extended to bad performing businesses. It is a desperate attempt to revive the economy. But the economists and experts consider it as a bad strategy. 

They argue that the Collateralized Debt Obligation (CDO) has taken a new form from the Collateralized Loan Obligation (CLO). It has been calculated that more than $1 trillion CLOs are outstanding. It is much more than the mortgage amount ($650 billion), which played havoc with economies. Now we can imagine the magnitude of the impact if banks collapse under the weight of this pressure of CLO. The Atlantic reported that the most worrying part is that banks and credit ranking companies are trying to conceal this information.

The situation has been further aggravated by the raging COVID-19 which has introduced new challenges for economies across the world. The GDP growth rate is in decline. Economies are contracting. People are losing jobs. The livelihoods of millions of people are at stake. The International Labour Organization estimated that about 14 percent of working hours have been lost. This is the equivalent of 400 million jobs lost in comparison with the fourth quarter of 2019. The supply chains have been troubled, and countries are struggling to sustain the supply of essential goods. It has introduced entirely two new problems, namely the restriction of mobility and economic lockdowns. These are completely new dimensions which human history has no precedent and humanity has no experience to deal with.

The American economy is among the worst hit economies of the world today. It is bearing the worst impacts and going through its weakest phase. The growth rate is coming down and breaking records. In the second quarter of 2020 it has gone down by 32.9 percent at an annual rate. 

We can also see similar situations in other leading economies around the world, except for China. Rich countries are extending hefty packages for common citizens to protect them from negative impacts. 

Countries are also announcing stimulus packages to revive business. However, the economists and experts have warned that the current trade wars will complicate the recovery process. It has also been advised by all global leading institutions that cooperation is the only way out to combat the COVID-19 and bring the economies back on track. Hence, they urge every country to cooperate irrespective of their affiliations.

Awkwardly, the US is moving in other direction. It has launched a new diplomatic war in addition to the trade war. US Secretary of State Mike Pompeo has unleashed a smear campaign against China. He is trying to malign state institutions and the Communist Party of China. He even did not hesitate to violate diplomatic norms to address the head of state of China. The US is also supporting the Hong Kong rioters in the name of civil liberties and human rights. He has forged alliances with UK and some other countries to slander China over Hong Kong-related affairs. The civil liberties and human rights are just a smoke screen because if the US and its allies really care for civil liberties and human rights, they must have been standing with Kashmir and Palestine. The attitude of the US can be compared with the actions of the UK after the 1930 recession, especially at the time of creation of Bretton Woods institutions and World War II. The US wants to limit China's access to its partners' markets. Pompeo and sometime President Trump himself pressurize its allies and partners to limit their businesses with China. The purpose is to maximize the economic benefits at the cost of China. The other purpose is to pressurize China to buy the US' debt by investing in different products of the Treasury. China is already the biggest investor with $1.08 trillion. But the US again has plans to convince China to invest in its Treasury to come out of recession. Another striking similarity is that the US is trying to convince China to fund its ambitions as a hegemonic power.

However, Beijing is not ready to pay for the mistakes of Washington, as the US refused to pay for the mistakes of the UK. But Trump has to show progress on the economic front, as he had promised during his election campaign. In desperation he even went to extend loans to bad performing businesses, which gave him breathing space for some time. But the bad strategy to tackle COVID-19 unleashed a new phase of the economic crisis. The combined impact has shaken the basis of economy. It seems it is leading toward an economic recession.

Despite massive negative propaganda against it, China had extended a helping hand to the US. China showed its willingness to cooperate and devise a win-win scenario. Regrettably, the White House rejected that and asked Beijing to deal on Washington's terms and conditions, which China will never accept.

The global community is quite concerned over the current situation. It is a matter of grave fear. If the diplomatic tussle continues, the global economy will be plunged further into recession. It would be bad news for everyone. Hence, sensible members of global community are asking the US to come out of the mind-set of a hegemonic power and start cooperating. It would be beneficial for all including the states and its people. The biggest beneficiary of the cooperation would be the US itself - as China may again invest in US Treasures to bail America out. 

The author is director of the Asia Study Center, Sustainable Development Policy Institute, Pakistan. opinion@globaltimes.com.cn