Trump was elected as US President largely due to his poll promise, “Make America Great Again” (MAGA), which aroused huge expectations among the citizens. He now faces a compelling situation to fulfill his promise, particularly in the current scenario where the USA is grappling with a challenging financial situation, slowing growth, rising household debt, and the potential for a sharp decline in economic activity. Obviously, he needs to find a quick solution to the economic mess to maintain his credibility and popularity.
Trump seems to believe that imposing tariffs would be a quick solution. He has announced a 10% baseline tariff on all countries, effective from April 5, 2025. An individualized reciprocal highest tariff on countries with which the US has the largest trade deficits will be imposed on April 9, 2025. These reciprocal tariffs vary, such as 24% for Malaysia and 49% for Cambodia.
In announcing the tariffs unilaterally, Trump has disregarded the concept of multilateralism and WTO regulations, which have been established through consensus among different countries over the years. To this extent, Trump can certainly be criticized for lacking a responsible approach to the global community. In any case, Trump has not concealed his self-interest (the interest of the USA), even if it adversely impacts other countries, including long-term allies.
While Trump’s announcement has not caused any surprise, as he had given enough indication earlier, the steep level of tariffs has certainly shocked the world. Trump has provided what appears to be a logical explanation for his decision, particularly regarding the tariffs imposed on India. He stated, “India charges 52%,” implying that his tariff on India is only 27%. He described this as a very tough decision since the Indian Prime Minister is a great friend.
By and large, leaders in several countries have responded to Trump’s tariff assault with dignity and even some level of understanding of his compulsion, while also examining the options available to handle the situation. It is likely that a few countries, such as Canada, may respond by imposing counter-tariffs on US goods.
The USA is a very large consumer market, making it of great interest to every country in the world for selling goods and services. Trump appears to think that by imposing such high tariffs on imported goods, domestic production would increase, as the price of imported goods for US consumers would rise steeply. However, given the present situation, it is uncertain whether domestic production of all types of goods can be significantly increased in the immediate future or even in the long term.
Even before the Trump administration, several anti-dumping duties had been imposed by the USA on goods imported from different countries, including China. These duties were implemented over the years to protect domestic industries. In other words, Trump’s current strategy of imposing tariffs is an extension of what has already been done selectively in the form of anti-dumping duties for certain products. The only difference is that Trump has imposed tariffs on all products, which can be interpreted as anti-dumping duties in a different format. It is unclear whether the new tariffs would be superimposed on existing anti-dumping duties.
The issue is that several goods imported into the USA are low-technology products, labor-intensive products, or products that face environmental issues in production or involve hazardous processes. It has been a make-or-buy decision for the USA regarding such products, particularly since many of these products may not interest investors in the USA due to low returns. No one has compelled the USA to import these products, but it has been doing so out of necessity. Such needs will continue despite higher tariffs on imports.
When the tariff dust settles after a few weeks, Trump will likely find that most goods and commodities will continue to be imported into the USA, even with higher tariffs, leaving US consumers paying more than before. While higher tariffs may boost government income to some extent, it will come at the cost of US consumers, which cannot be a happy situation for Trump.
Furthermore, when reciprocal tariffs are imposed by other countries on US goods, such as those announced by Canada, US producers will find it difficult to compete in price terms in several overseas markets. This is particularly true since US goods will have to compete with China in the global market, whether in automobiles, electronic goods, or chemicals. China is known for adopting non-transparent methods in product pricing and extending credit terms to penetrate the global market. With such tactics, China could outdo the USA in the global market when counter-tariffs are imposed on US products by other countries.
To achieve Trump’s objective of MAGA, he must ensure that domestic production in the USA increases substantially, which cannot happen anytime soon. In the case of many products, production may not increase at all due to a lack of techno-economic feasibility under prevailing conditions in the USA. Can we say that Trump’s tariff actions are akin to “cutting off the nose to spite the face”?
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*Trustee, Nandini Voice For The Deprived, Chennai
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