It is mind-boggling to watch this second term of Trump, or Trump 2.0. First the flood of ‘executive orders’, though apparently they are technically not really ‘orders’. And now the long awaited ‘Liberation Day’ announcement of tariffs including Trump’s incoherent ‘reciprocal tariffs’, though, in fact, it is no liberation. As The Economist described the Rose Garden event:
Speaking in the Rose Garden of the White House, the president announced new “reciprocal” tariffs on almost all America’s trading partners. There will be levies of 34% on China, 27% on India, 24% on Japan and 20% on the European Union. Many small economies face swingeing rates; all targets face a tariff of at least 10%. Including existing duties, the total levy on China will now be 65%. Canada and Mexico were spared additional tariffs, and the new levies will not be added to industry-specific measures, such as a 25% tariff on cars, or a promised tariff on semiconductors. But America’s overall tariff rate will soar above its Depression-era level back to the 19th century.”
As Glenn Kessler in WAPO describes these Trump Liberation Day tariffs:
Trump’s speech announcing a huge increase in tariffs on American trading partners was riddled with falsehoods and misleading statements on trade that he has made for years. But now they are determining policy that will increase the costs of goods for many Americans.
But as The Economist pointed out about this tariff announcement:
Almost everything Mr Trump said this week—on history, economics and the technicalities of trade—was utterly deluded. His reading of history is upside down. He has long glorified the high-tariff, low-income-tax era of the late-19th century. In fact, the best scholarship shows that tariffs impeded the economy back then. He has now added the bizarre claim that lifting tariffs caused the Depression of the 1930s and that the Smoot-Hawley tariffs were too late to rescue the situation. The reality is that tariffs made the Depression much worse, just as they will harm all economies today. It was the painstaking rounds of trade talks in the subsequent 80 years that lowered tariffs and helped increase prosperity.
Take a look at the tariffs imposed by Trump as described in Upshot at the NYTimes:
New tariffs for select trading partners
| Country | New
tariff |
Share of
U.S. imports |
Goods trade
balance |
| E.U. | +20% | 18.5% | –$241 bil. |
| China | +34% | 13.4% | –$292 bil. |
| Japan | +24% | 4.5% | –$69 bil. |
| Vietnam | +46% | 4.2% | –$123 bil. |
| South Korea | +26% | 4.0% | –$66 bil. |
| Taiwan | +32% | 3.6% | –$74 bil. |
| India | +27% | 2.7% | –$46 bil. |
| Switzerland | +32% | 1.9% | –$39 bil. |
| Thailand | +37% | 1.9% | –$46 bil. |
| Malaysia | +24% | 1.6% | –$25 bil. |
Show 50 more rows +
Sources: White House, Observatory of Economic Complexity Notes: Trade balance and import share figures based on 2024 trade data.”
And Mr Trump’s grasp of the technicalities was pathetic. He suggested that the new tariffs were based on an assessment of a country’s tariffs against America, plus currency manipulation and other supposed distortions, such as value-added tax. But it looks as if officials set the tariffs using a formula that takes America’s bilateral trade deficit as a share of goods imported from each country and halves it—which is almost as random as taxing you on the number of vowels in your name.
Anthony DeBarros, the data news manager at the WSJ, describes it this way:
The White House’s new tariffs were pegged to amounts it said other countries impose on the U.S. In many cases, those amounts appear to match a basic formula: the size of a country’s goods-trade imbalance with the U.S., divided by how much America imports from that nation.
The chart President Trump read from in the Rose Garden [image above] listed tariffs charged on imports from the U.S. as “including currency manipulation and trade barriers.” The numbers don’t necessarily match what foreign countries charge against imports from the U.S.
For example, Chinese tariffs against the U.S. were about 23% overall as of last month, according to the Peterson Institute for International Economics.
But dividing the U.S.’s 2024 goods-trade deficit with China, of about $295 billion, by the amount the U.S. imported from China results in the 67% tariff value presented by the White House.
$295bn ÷ $439bn=67%
The math works out that way for at least 71 of the 184 nations, plus the European Union, included in Wednesday’s announcement. In most of those cases, the U.S. is charging a new tariff of roughly half the rate it calculated.
And indeed Trump’s chart that he showed with applied tariffs, identifies China with 34% tariffs being applied.
As for many others, DeBarros points out:
For the remaining nations, including all those where the U.S. has a trade surplus, the tariff charged on imports from the U.S. was listed as 10%. In these instances, the U.S. set a 10% reciprocal tariff.
And The Economist even offers a solution starting with constraining the desire to hit back. Instead it offers the following alternative response:
Instead, governments should focus on increasing trade flows among themselves, especially in the services that power the 21st-century economy. With a share of final demand for imports of only 15%, America does not dominate global trade the way it does global finance or military spending. Even if it halted imports entirely, on current trends 100 of its trading partners would have recovered all their lost exports within just five years, calculates Global Trade Alert, a think-tank. The EU, the 12 members of the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP), South Korea and small open economies like Norway account for 34% of global demand for imports.
As many point out, however, China’s distorted trade policy needs to be addressed. China has committed too many harmful trade policies as identified by The Economist:
Building a trading system with China is desirable, but will be viable only if it rebalances its economy towards domestic demand to ease worries about dumping. Also, China could be required to transfer technology and invest in production in Europe in exchange for lower tariffs.
As Alan Beattie writes in his FT column:
There can be no logic-washing of Donald Trump’s tariffs. This isn’t part of a carefully-designed industrial policy or a cunning strategy to induce compliance among trading partners or a choreographed appearance of chaos to scare other governments into obedience. It’s wildly destructive stupidity, and the generations of American, and particularly Republican politicians, who allowed things to slide to this point are collectively to blame.
The message is: on those facing the Trump craziness, don’t commit the errors of Trump 2.0. Act smarter. Maintaining and deepening global integration should remain the goal and endpoint, notwithstanding Trump.
As The Economist concludes:
If this seems gruelling and slow, that is because integration always is. Throwing up barriers is easier and faster. There is no avoiding the havoc Mr Trump has wrought, but that does not mean his foolishness is destined to triumph.
The message is clear – don’t do what Trump has done. Hopefully, in the longer term major trading partners, friends and foes, will grasp the logic of greater trade with each other and leave the Trump trade strategy by the wayside.
In the short term, however, it is not likely. I can’t say that is very surprising. Retaliating in the short term is just too attractive – standing up to the bully. And, indeed, China has already responded with trade retaliation. As Keith Bradsher and David Pierson report in the NYTimes, the day after Trump Liberation Day:
China has struck back at President Trump.
In a rapid fire series of policy announcements from Beijing on Friday evening, including 34 percent across-the-board tariffs, China showed that it has no intention of backing down in the trade war that Mr. Trump began this week with his own steep tariffs on imports from around the world.
China’s Finance Ministry said it will match Mr. Trump’s plan for 34 percent tariffs on goods from China with its own 34 percent tariff on imports from the United States.
Separately, China’s Ministry of Commerce said it was adding 11 American companies to its list of “unreliable entities,” essentially barring them from doing business in China or with Chinese companies. The ministry imposed a licensing system to restrict exports of seven rare earth elements that are mined and processed almost exclusively in China and are used in everything from electric cars to smart bombs.”
Hurtful and ‘Trump-like’.
I had hoped not only to examine the impact of Trump 2.0 tariff policy on the global economy but also focus on policy actions that have enhanced, or possibly sustained the multilateral institutions or, alternately, weakened the multilateral institutions. And to that we will move to.
Image Credit: BBC
This Post originally appeared at my Substack Post, Alan’s Newsletter – https://globalsummitryproject.substack.com/p/the-spiral-of-disorder-building-then
