US President Trump unleashes tariff tornado

Dreaded April 2, when United States President Donald Trump had warned of announcing reciprocal tariffs, had come and brought bad news to many countries in the world, though the day of reckoning has been deferred to April 9 when the April 2 tariffs would go into effect. World trade must have felt a whiff of cold breeze but as of now not anything more than that.

Very few countries have turned penitent and promised to bring down their own tariff walls aimed against American imports. Assessment about the probable damage it would cause to countries which have been exporting heavily to the United States, for example China, and even the European Union (EU), are only too ready to hit back with counter-tariffs.

Many Trump-watchers and global economic experts think that the Trump response to the heavily trade-deficit – $1 trillion – American economy is not really a smart one. Apart from the fact that it is more likely to pull global trade into a slump, it will not achieve what Trump wants to achieve – that American manufacturing should re-open and make America a manufacturing hub that it was in the last century.

But there is no denying the fact that American tariffs are quite low and many other countries are taking advantage of it. But other countries, especially China, are exporting to America because Americans are buying.

There can be one of two outcomes. Either Americans will stop buying foreign goods because of import duties, or the exporting countries would suffer a slowdown. The countries which earn from their exports to America will slip into recession. And there is the distinct possibility that American economy would go into recession because the consumer spending would be slowing down American economic growth.

Trump’s new tariff policy is not likely to re-ignite American manufactures, and it will hit the economic growth in other countries. America being the largest economy will be triggering a global recession because of Trump’s tariff pyrotechnics.

Trump officials have carefully calibrated the quantum of tariff which each country would face, and it reveals ridiculous anomalies. While China, the largest exporter to America, will face a tariff burden of 54 per cent – 34 per cent from Wednesday’s announcement and 20 per cent tariff imposed earlier – Cambodia faces 49 per cent tariff burden, Vietnam faces 46 per cent, Myanmar 45 per cent, Sri Lanka 44 per cent and Syria 41 per cent.

This is not a fancy figure that the Trump administration has worked out on its own. It is based on the reciprocal tariff principle. The tariffs on American imports in these countries is indeed high because of their internal economic dynamics. And American economy is not in any way affected by their exports to America. The fact that America is an indebted economy cannot be remedied by Trump’s tariffs, and that is where the whole problem lies.

The tariff rates in major economies is not unreasonably high as President Trump would like to argue. The simple average rate of America tariffs is 3.3 and trade-weighted average stands at 2.2 per cent, and it is indeed the lowest in the world. China, the second biggest economy, has an average tariff rate of 3 per cent, which is only 1 per cent higher than the American average, and its trade-weighted average is more than double at 7.5 per cent.

Trump has argued that his reciprocal tariffs are still lower than what American exports face. American goods face 60 per cent tariff rate, higher than what the new high of 54 per cent tariff now imposed on Chinese goods. Global trade and tariffs are much too complicated and President Trump it seems has no patience with complications.