Trump Restarts Tariff War With the World

After a brief lull, United States President Donald Trump went back to destabilising the global trade order by sending letters to 14 countries unilaterally announcing steep rates—between 25 to 40 percent—they would have to pay starting August 1. Prominent among them were close allies like South Korea and Japan. The rest are relatively smaller nations that would feel the burden of the measure.

The letter states that any reciprocal tariff they implement would be added to what has already been decided by the US. A deal with India is imminent, he announced elsewhere, while also warning that any tariff related policy entertained at the BRICS summit, where besides India, countries like Russia, China, Brazil and South Africa are taking part, would invite a punitive tariff.

But none of it is final. The original deadline for making tariff deals had just arrived July 9. The reason these letters went out was to tell these countries and as well as signal to others that they better complete a deal with the US soon. Trump says that even August 1 is not a hard deadline and might be extended.

Trade requires predictability and the import of such moves by the US, which is the biggest consumer in the world of foreign goods, that the world or companies remain in a state of financial anxiety. This will be reflected in precautionary moves like cutting back on production, which in turn leads to a hit on top lines and bottom lines. Until deals are finalised this state will continue harming the US too in the process. It is potential damage that Trump has ignored but at some point will translate into serious consequences to the economy.

A second consequence of such behaviour will be all countries hurrying to reduce their dependency on the US market. It is why Trump threatened the BRICS members. For the moment, other countries might not want to antagonise the US but they will gradually push for alternatives because there is no telling what arbitrary change Trump will institute. Or the demands the US will make on their domestic issues using trade as a weapon.

It is also not a given that once Trump’s term ends, stability will return. Trump looks at tariff as a way to jumpstart domestic manufacturing and to bring in revenues to make up for the huge debt levels of the US that keeps increasing every year. His successors could find themselves entrapped by what he has unleashed.

 

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