Trump and tariffs

It takes some reading – well, really, a lot – to understand the ramifications of the global trade politics currently unfolding that has placed US President Donald Trump in the fulcrum, with China and US traditional allies like Canada, the European Union, and Mexico on the defensive.

Actually, the countries that Trump has been dissing are initiating their own countermeasures, which just fuels the anxiety of world economists and diplomats that a world war involving a breakdown in accepted international laws is becoming imminently unavoidable.

To appreciate the complexity and importance of events unfolding, let us step back to refresh our minds on what has been happening, and to understand how all of these have come to be. Then only can we contextualize where we stand.

Let us go back to the end of World War II, a time when the victors led by America signified a shift to a rules-based international order to usher in democratization, world peace, and prosperity.

What followed were bilateral treaties between countries, before taking a leap forward with the formation of international agencies like the United Nations, the International Monetary Fund, the World Bank, and the World Trade Organization – all these under the strong support of the US.

Targeting China

Free trade in a growing liberalized world economy was pushed by developed countries, and while there had been debates as to whether they indeed benefited developing countries, the more popular barriers such as tariffs were abandoned.

Ah, tariffs. Who would have thought that America, who had actively campaigned to abandon protectionist measures, would ironically bring it back to the negotiating table, but this time as a measure to “save” itself.

As a presidential candidate, Trump campaigned to bring back lost jobs to Americans, who wrongly or rightly believe that free world trade has caused its manufacturing industries to be relocated in other countries like Mexico, China, and India.

After being elected, Trump targeted China as the reason for a weak US economy, which supposedly exacerbated its massive trade gap of $336 billion in 2017. He also accused China of forcing US companies to transfer their technology knowledge to monopolize business.

In early March this year, Trump imposed a 25 percent tariff on steel and a 10 percent tariff on aluminum; China retaliated. Then, just last week, Trump announced a new round of tariffs on hundreds of Chinese products; China answered by hitting back on US soybeans, beef, seafood, and other products.

While there is little news as to how China is coping with the US tariffs, American producers of soybeans, who export about 60 percent of their harvest to China, are already worried about falling prices resulting in a supply surplus in the world market.

Unfortunately, this situation is not going to be confined to just the soybean producers.

Escalating war

Should this trade punch-and-counterpunch persist and escalate, the world’s consumers stand to lose. Tariffs, being taxes, will ultimately find their way to the finished products.

The Philippines may be able to buy cheaper steel that is needed for its Build Build Build projects, but products that have steel and aluminum that are made and available only in the US will be more expensive for us when imported.

As economists warn, no one wins in a trade war. Everybody in the supply chain suffers – from the producers, manufacturers, small businessmen, down the line to the consumers.

And the bigger bad news is that China is not the only country being dragged into the melee. Hiked tariffs on steel and aluminum were also slapped on Canada and Mexico, two countries that have traditionally been US allies.

Worse, the situation is perceived as a dirty negotiating tactic by the US against the Canadians and Mexicans to get what it wants revised in the North American Free Trade Agreement, which is currently under a new round of renegotiations.

Flawed economics

In the midst of everything that’s happening, the big question pops up: Is Trump doing the right thing? Is his ideology of an American for Americans something that would really benefit his country in the end?

The US economy has been performing better than expectated in recent months, and new jobs are beating joblessness that pervaded the economy during the last few years.

Critics warn that Trump’s timing is off, and all this taunting will negatively affect America’s newfound economic exuberance, and ultimately push back the global economy towards another slump.

They add that many Americans may have lost jobs, but this was largely because of a technological tsunami that some American businesses, like those in the steel mills, had not been able to nimbly adapt to.

Trump, many economists agree, is partly right that there are problems with the US’s existing trade policies, and that some changes are necessary. However, the flaw is how he is attacking these policies, which is giving rise to flawed economics.

Like many countries in the world, the Philippines is on a wait-and-see mode. We have our own problems and our own aspirations. What we don’t need is a wrong move by one person that can send all of our efforts so far down the drain.

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