Trump’s Disruption of World Trade

Interstate rivalries, competition and conflict have been present throughout history as also the search for trading opportunities. In the period of colonialism and neo-colonialism across Latin America, Africa and Asia, the East India Company, the Opium Wars, or China’s Belt and Road, the quest for market access is ever present.

At the end of World War ll, idealists sought to regulate armed conflict, monetary and trade wars, through new instruments; the United Nations, the World Bank, the Monetary Fund and General Agreement on Tariffs and Trade which became the World Trade Organisation to remove predatory pricing, tariff and non-tariff barriers like environmental and labour standards, unilateral sanctions deemed illegal under international law unless approved by the Security Council, technology bans, industrial espionage and currency manipulation. These rules were largely prescribed by, and benefitted, western developed nations. New-age monopolies like Google, Apple, Meta, Amazon, and TikTok distort global trade flows in ways the WTO never imagined at its inception.

The WTO works by consensus whereby one member could block the decision-making process. This benefited India, which blocked free trade in foodgrains, intellectual property and patent protection on the grounds of protecting its agriculture, generic drugs and biodiversity. USA never has any liking for international organisations where it is just one among many theoretically equal partners. The developed countries, frustrated by the consensus principle, rendered WTO toothless, and its dispute settlement mechanism is comatose due to US blocking nominations of judges to serve on the appeals court.

USA is the world’s biggest economy, the biggest importer at 13% overall and $3 trn in volume; and the 2nd biggest exporter after China at $2 trn. Its power on world trade is therefore immense, yet US President Trump claims that others take advantage of American trade policies, though only 18 countries account for 95% of US imports. In a brazen show of Machiavellian power politics, Trump announced a series of country-specific and commodity-specific import taxes ostensibly to boost American manufacturing and protect jobs. He claims high tariffs will encourage US consumers to buy more American-origin goods, increase the revenue and lead to higher levels of employment and investment. Trump wants to reduce the monetary gap between what the US buys from other countries and what it sells to them, but makes additional demands; for instance, he wants China, Mexico and Canada to do more to stop migrants and drugs like fetanyl reaching the US.

Tariffs are taxes on imports as a percentage of a product’s value. A 10% tariff means a $10 product would have a $1 tax — taking the total cost to $11. Companies that import goods pay the tax to the government and may pass some or all the cost to customers gradually or all at once. But customers will pay for them eventually.  Importers may also decide to import fewer goods. Trump’s tariffs raise costs for American companies that operate abroad, especially firms that manufacture clothing and footwear. Avenues for foreign investments could shift.

Imports to the US account for only about 11% of consumer spending. Trump argues that inflation data shows consumer prices up only 0.1% while government revenues have increased manifold.

Trump has expressed frustration with the lack of progress and threatened to introduce a higher rate of 50% on 60 ‘worst offenders’ and imposed a deadline of 9 July. But the White House now says no deadline is “critical” and that Trump could simply present some countries “with a deal”. Over the past months he has repeatedly changed tariff lines, targets and deadlines, though the worst thing for international trade is unpredictability.

Not every country takes this lying down. China retaliated with its own tariffs, but after talks last May, it agreed with the US to cancel some tariffs altogether and suspend others for 90 days.

Many other countries are working on retaliatory or conciliatory measures. Friends and foes are equally affected; some of the steepest rates are aimed at allies Japan (24%) and South Korea (25%). In Asia, only Vietnam has managed to strike a deal so far – US imports face 20% tariffs, while US exports face no levies. Some realignments are taking place; Japan, China and South Korea are considering joint measures, and the South Korean president has said he might open dialogue with North Korea, Russia and China. Trump’s announcements cause volatility on global stock markets, affecting pensions, jobs and interest rates. The value of the US dollar has fallen and IMF downgraded its prediction for global economic growth this year with America the hardest hit, with recession possible in 2025.

Yet, the signals so far are certainly mixed. The US stock market is up about six percent for the year; in Europe, shares have also rebounded. But retailers and car companies are hurting, and there is more risk ahead. Whether US households will spend less over time is debatable. Retail sales have dropped only 0.9%, the second month of decline, but overall consumer spending grew at the slowest rate for five years. Growth is expected to slow significantly compared to last year, but American unemployment remains low, at 4.2%.

Countries with big domestic demand like India may be insulated from trade shocks, but economies more reliant on exports, like Singapore, Vietnam and China, will see a major impact. US/India talks are presently stuck on dairy and agriculture which contribute only 16% to India’s $4 trillion economy, but sustain nearly half the country’s 1.4 billion population.

For India, Trump’s threats are not new. In 2018 USA denied India GSP benefits of duty-free access for $5.6 billion of our exports, and India hit back with tariffs on almonds, apples and Harley-Davidsons. With shared democratic values and deepening strategic ties, India could lead global resistance to the American unilateral demolition of trading rules painstakingly built over 80 years. But this frankly seems unlikely. Meanwhile, Trump’s actions have opened the door for China to become the guardian of the world trading order.
Every rise in tariff is a process that can raise prices, cut access and kill innovation. And for each of us, the War of Tariffs isn’t just an abstract game of nations, but a factor for everyone that sells, shops, scrolls, or manufactures.

ChinaDonald Trumpglobal economyGSP benefitsJapanSouth Koreatrade barrierstrade tariff