STAYING true to his word, United States President Mr. Donald Trump has slapped imposing tariffs on Canada, Mexico and China. These sweeping tariffs have been met with retaliatory action from Canada and Mexico as China weighs its options to come back hard at the US. The speed and scope of the tariffs has threatened to hit global trading system as experts are predicting volatility in the world economic order where America still has a major say with its strong dollar.
President Mr. Trump’s move has attracted widespread criticism from lawmakers, economists and business groups within the country as well as from the nations which are in line of fire.
The POTUS has defended the tariffs but acknowledged that there could be some negative consequences in the US. Yet, given his overall posturing during Presidential campaign and later his hard-hitting speech at the inauguration, Mr. Trump is unlikely to back down. The world now braces for cascading effects of the tariff war as many other countries which are “harming the US” are likely to face similar import duties unless they find a way around the Trump Threat.
Canada is the most affected country in the first round of the tariff war as Mr. Trump has imposed 25 per cent on imports from Canada, excluding energy products like oil and gas which will face a reduced 10 per cent tariff. Ottawa has also come back hard at the US by removing American products from its markets and imposing retaliatory tariffs. The tariff war with Canada and Mexico looks part of a political strategy to curb illegal immigration and drug trafficking. Mr. Trump has used the economic heft of America to get a good bargain on issues of security as the President is out to deport all illegal immigrants from the US.
There is still a possibility of potential reprieve for Canada and Mexico if they sit across the table to address immigration and drug trafficking concerns. Given the maverick nature of Mr. Trump’s policies, there is a big possibility of a reversal of tariffs.
The bigger point of interest is the 10 per cent tariff on China which can escalate trade war between the two top economies. China is mulling to file a lawsuit with the World Trade Organisation (WTO) against the “wrongful practice”. It will take some time leaving an eerie pause in the trade war which can easily affect the entire world including India. How both the countries move ahead to finalise the contours of their trade relations in wake of Mr. Trump’s decision will shape many factors in the global economy.
Mr. Trump’s decision to trigger the tariff war is a result of many factors including slowing down of the US economy.
Higher tariffs are a means for Mr. Trump to avert possible dumping of goods by countries and at the same time protect domestic industries. There is another aspect of geopolitical necessities that Mr. Trump’s foreign policy-makers are concerned about. There is a growing fear in the political class in the United States that its power is weakening in the changing global order. Under Mr. Joe Biden, the US was unable to assert itself in the Russia-Ukraine and Israel-Hamas military conflicts which has led to a change in approach by Mr. Trump. High tariffs and the threat of bringing more nations, including India, under the ambit of import duties are part of a bigger strategy to reclaim the position of authority in the world for Mr. Trump.
For India, implications of the trade war are multi-fold. It has already affected the financial markets. The downsides include rise in oil prices and driving up inflation. But there is a positive, too, if the US-China trade war continues. It could see more production shifting to India, presenting a significant opportunity for the country's manufacturing sector.