Trump's tariff war

US President Donald Trump started his second term all set to make disruptions in both the political and economic fields. Immediately after assuming power, he issued a number of executive orders. One among them, which was struck down by the the court as unconstitutional was an order that is unfavorable to immigrants and revokes birthright citizenship. There are other threats from him to occupy Gaza amid the Israel-Palestine conflict. Meanwhile, the decision to impose a 25 percent tariff on the import of steel and aluminum products naturally created ripples in the financial sector. It is natural that the global financial system was shaken when the announcement came that import restrictions and duties would be imposed on more products.

Also read: Trump's tariff threats on steel, aluminium: stock market trades lower

European Union countries, which export a range of products to the United States, including steel and aluminum, were quick to retaliate against the United States. EU President Ursula von der Leyen said the US decision will not go unanswered. That meant that American products being exported to European countries will have to face retaliatory tariffs. Trump's theory is that if the price of imports rises, domestic products will be able to catch up, and, accordingly, more jobs will be created. But that was not the experience in 2018 when similar duty was imposed. In Trump's first term, tariffs on a total of $400 billion in imports caused significant wear on the American economy. Gross domestic product, household income, and total employment declined. An estimated 75,000 jobs were lost when compared to what would have existed in the absence of tariffs.

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In 2018, America's neighboring countries of Mexico and Canada were subject to tariffs for exports but exempted temporarily from it. However, with its re-introduction, retaliatory taxes returned. It was then resolved through an amended version of the free trade agreement. Canada ranks first in US steel imports, and Mexico has the third place. But China's steel, which accounts for nearly half of world steel exports, accounted for just 2 percent of U.S. imports last year. Still America's agenda is to weaken China economically. When the US imposed a 10 percent tariff on Chinese products, China did not sit quiet, but imposed counter-tariffs on American imports, including natural gas, coal, and crude oil. Apart from that, the Chinese position is that it will also restrict Chinese export of minerals and other products that are crucial for most American industries. Earlier, China was reluctant to impose tariffs on the full range of American products because an uncontrolled trade war would hurt. However, this is not how China thinks today. On the one hand, by reducing imports, US domestic products can get better prices. This will in turn increase the cost of US products using imported raw materials which in turn will make them more expensive and thus less competitive.

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However, if the U.S. starts using tariffs as an economic-political weapon, it is sure to fuel political animosity and create economic instability. An example is the turmoil in the stock market and the gold market immediately following `Trump's tariff war announcement. Similarly, if the EU and China impose counter-taxes, this instability will only increase. As with many other Trump decisions, the main issue in this tariff war is treaty violations. As a rule, nations generally honour international agreements, even when regimes change. However, Trump doesn't consider himself subject to any such agreements and courtesies. One may recall that Trump unilaterally canceled the 2015 nuclear deal with Iran and withdrew from the 2016 Paris Agreement to curb global warming during his last term. And the Joe Biden administration rejoined them after they came to power. But, now once again, Trump has said that the US under his regime will no longer continue in the Paris Agreement. Trump's moves also interfere with the agreement to demilitarise Gaza.

Also read: Canada joins Mexico imposing retaliatory tariff on US

On the issue of global trade, Trump seems to be daring to impose import tariffs without any regard for trade agreements signed in 1995, which reduced trade restrictions and tariffs under the auspices of the World Trade Organization (WTO). Today, 80 percent of world trade is conducted under WTO agreements which were framed on the basis of liberalisation, privatisation, and globalisation despite popular opposition in many third-world countries. However, the US, which took the initiative then, seems to have forgotten all that. All relations and transactions between nations are carried out without conflict thanks to agreements based on the assumption of a minimum level of dignity. There is no authority with the military capacity to enforce it. So the leader of America, the biggest economic and military power, is doing the work of blessing a world order where the one who has the upper hand with greater muscle power gets its way. Perhaps Trump will put an end to it when the US and his regime face the repercussions of his actions.

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