The biggest change in world trade in a century
The tariffs imposed by US President Donald Trump on imports from various countries will have a huge impact on the global economy.
The extent to which these tariffs have increased can be understood by looking at the chart of US tariff revenue. The tariff lines on the chart have risen so high in a single blow, which has not been seen in the past century. These lines have even surpassed the period of high protectionism of the US economy in the thirties of the last century.
The impact of these additional tariffs imposed by Trump has already begun to fall. There has been a decline in stock markets overnight, especially in Asian countries. However, the real impact of these tariffs will be the significant changes that are going to come in the long-standing global trade. At the center of Trump’s new policy is a universal tariff of 10 percent on all goods imported into the United States. This tariff is going to be effective from tomorrow, Friday night. Since then, additional counter-tariffs have been imposed on dozens of countries. These countries have a trade surplus with the United States.
The scale of the tariffs imposed on Asian countries is truly staggering. This tariff increase will destroy thousands of businesses, factories, and perhaps entire countries. Some of the world’s largest companies will immediately collapse their supply chains. This inevitable effect will certainly push them towards China.
Is this an attempt to reconcile tariffs and taxes? The US administration is apparently claiming that these tariffs were increased to reduce taxes. However, the scope for quickly reconciling the two is limited. A White House official has clearly stated, “This is not reconciliation, this is a national emergency.”
The US government’s formula behind these so-called “retaliatory tariffs” is to impose additional tariffs on countries with which they have a large bilateral trade surplus. This means that those countries have exported more to the United States than they have imported from the United States. When a country does not have a trade surplus with the United States, a minimum tariff of 10 percent will be imposed on that country’s goods.
This makes two things clear overall. The goal of this policy is to reduce the US trade deficit to zero. This is significant in terms of changing the course of world trade and taking punitive measures, especially on Asia.
Second, it is clear that bilateral negotiations have made little or no difference.
Deficits and surpluses are a normal part of a trading system, where each country acquires expertise in producing different things. The United States is now apparently rejecting this argument.
But it will take years to move factories. Tariffs of this magnitude in Asia, especially at 30 or 40 percent, will quickly increase the price of clothes, toys and electrical appliances.
The question now is how the rest of the world will respond to this US decision.
Europe may now decide not to buy consumer goods from US brands.
The monopoly of US technology companies could be shaken.
And US authorities may have to raise interest rates to combat the inevitable inflation.
An unintended trade war seems inevitable.
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