Beggar thy neighbor and yourself: Trump tariffs could be a disaster for the US
The 47th US President Donald Trump has unleashed a trade war across the globe – with both enemies and friends. So far, it has looks more like a chaotic artillery barrage than a well-planned offensive, the observer believes Air force Alexey Kalmykov: Is there a well-thought-out strategy behind all this?
Photo: Tomasragina | Dreamstime.com
Trump introduces, cancels, suspends and raises import duties almost daily, threatens to ruin his neighbors and is ready to put his own citizens on a starvation diet in order to win the trade war.
Economists say the White House strategy that is beginning to emerge from the chaos is not good for the world or America.
They warned before the election that Trump's attacks on free trade would make everyone poorer, but supporters and even critics of the American president urged not to overdramatize. Some said the head of the White House was bluffing to obtain concessions in negotiations, while others said that the falling stock market or worsening US economic indicators would keep him from taking radical steps.
On the subject: What Problems Is Trump Trying to Solve with Tariffs, and Why It Threatens an Economic Crisis
The reality turned out to be harsher. Trump was not fazed by the stock market decline, the threat of inflation acceleration, or the specter of a recession in the American economy, which had shown miracles of growth before the election.
Trump spent the first half of March attacking his major trading partners: Canada, Mexico, China, and the European Union. All but Mexico responded with forceful resistance.
There is now a couple of weeks' respite on the trade front, giving a chance for negotiations and a truce. If diplomacy fails, Trump is ready to go on the big offensive. He has even set a date: April 2.
"Some difficulties" with the stock market
Since the beginning of March, the U.S. stock market has lost $5 trillion. After the election, investors eagerly bought shares in American companies, hoping for profits to rise from promised tax cuts and deregulation. But after the first two weeks of the trade war, enthusiasm turned to gloom.
Trump seems unfazed. While in his first term he closely followed the stock market, boasting of its growth and considering it a measure of achievements in the real economy, this time he is ready to make sacrifices.
In the midst of the stock sell-off, the president was asked how he felt about it.
“I don’t follow the stock market at all,” Trump responded, adding that the record decline in the indexes was not due to his tariffs, but to some “globalists who see our country getting rich and they don’t like it.”
Even if the American economy slows down, the difficulties will be temporary, Trump is confident: “There will be a transition period, because we have started a very big thing.”
“Tariffs are not just about protecting jobs. They are about protecting the soul of our country and making America rich and great again,” Trump told Congress in early March. “There will be some bumps, but we’re okay with that. That’s okay.”
"Beggar thy neighbor"
Trump's trade policy is borrowed from the 1930s, an era of tariff wars and beggar-thy-neighbor devaluations that ended with the Great Depression and World War II.
Trump is confident that this time the old recipe will work for the good. He tried it when he was the 45th president. As economists found, the standoff with China damaged the American economy.
But now everything is much larger and more serious.
Last time, Trump imposed tariffs on $380 billion worth of goods from China and $8 billion worth of goods from Europe, but he introduced them gradually over 2018-2019. Now Mexico and Canada have been added to the list, and the total amount is already three times larger – about $1 trillion.
Moreover, these duties are not being introduced gradually, but simultaneously, and on April 2 the amount will increase by at least one and a half times - to $1,5 trillion only due to temporarily postponed duties on two neighboring countries. And to them will be added the "retaliatory" duties promised by Trump on all US trading partners.
"Everyone will suffer. Some countries more than others. But in the end, everyone will lose," Christine Lagarde, the former head of the IMF and now president of the European Central Bank, told the BBC.
She hopes the next two weeks, before the rest of Trump's tariffs go into effect, will be a time of intense negotiations. If they fail, Lagarde says, "a real trade war" will begin.
"This will no longer be just a cause for concern. The trade war will have serious consequences for global economic growth," she noted.
There is no way back
Some countries are trying to negotiate with Trump behind the scenes and refrain from retaliatory tariffs. This is what Mexico, Great Britain, and Australia did.
Others prefer tough negotiations with public confrontation. Both China and the EU have responded decisively.
But the best example is Canada.
At the end of last year and the beginning of this year, Prime Minister Justin Trudeau made several trips to Mar-a-Lago and Washington, where he tried to dissuade Trump from starting a trade war. Nothing helped, and Trump imposed a tax on his northern neighbor.
The Canadians responded with a full-throated salvo, and Trump backed off a bit. The Canadian position was articulated back in January by Mark Carney, who has now replaced Trudeau as prime minister. Carney, who used to be the head of the Bank of England, is trusted by the British, so they called him on the BBC and asked him whether Britain could avoid Trump’s tariff wrath by keeping quiet.
"Yeah, good luck," Carney chuckled.
Trump's trade aggression has already met with a massive response. As a result, experts and investors are gradually losing faith in the bright future of the American economy - currently the largest in the world.
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"The renewed trade war will once again hit American exporters. By March 13, China, Canada, and the European Union alone had announced or imposed retaliatory restrictions on $190 billion in American imports, according to the Tax Foundation."
The losses will continue to mount even if Trump relents. That is the price of chaos and uncertainty sown by the US president's new tariff policy.
“Unfortunately, even a complete elimination of tariffs would not repair all the damage to business relationships, economic activity, and the U.S.’s reputation as a reliable trading partner and place to do business,” concluded Tax Foundation expert Erica York.
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