Trump will not let the world move on from tariffs

Hindustan Times

2 hours ago

When President Donald Trump stood outside the White House on April 2nd and revealed his 'Liberation Day' tariffs, all hell broke loose. The 'reciprocal' levies threatened to break financial markets, as well as scrambling international commerce. Thankfully, Mr Trump quickly backed down, cutting tariffs to 10% for most countries on April 9th and doing the same for China a month later. Markets recovered; uncertainty receded. The world economy tried to move on. Everyone began to lose interest. Everyone, that is, except Mr Trump .
In recent days he has signed orders removing a tariff loophole (the de minimis exemption) for parcels worth less than $800 (he had already closed it for China). He raised a 'fentanyl' tariff on Canada, which supposedly punishes the country for failing to stop the illegal drug flowing across the border. The increase from 25% to 35% was, he said, a response to Canada's own retaliation and support for Palestinian statehood. He also imposed a tariff of 50% on more than half of America's imports from Brazil, complaining the country was persecuting Jair Bolsonaro, its former president, much as Mr Trump himself felt persecuted after he was ousted from office in 2021.
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And to the dismay of dozens of countries, from India (population: 1.4bn) to Iceland (population: 0.0004bn), he also returned to the madness of Liberation Day. He imposed new rates on many of America's trading partners, designed to punish them for selling more to America than they bought from it. These levies will take effect from August 7th, and push America's average tariff, weighted by last year's imports, up to about 18%, according to the Budget Lab at Yale University.
Some countries have used the weeks since April 9th to negotiate a deal with America, promising to remove trade irritants, buy more of its stuff or cough up investment. Owing to the deal agreed between Mr Trump and the European Union on July 27th, the bloc will pay a tariff of 15%. That is higher than the 10% rate applied since April 9th, let alone the 1.4% average levy it faced last year. But it is better than the 20% announced on April 2nd and the 50% threatened by Mr Trump in May. Other countries that have struck similar deals include Japan and South Korea.
Another group is still in the middle of talks. The July 31st order threatens India with a tariff of 25%. America's president has been posting tetchy comments about the country and its 'obnoxious' trade barriers on his social-media network. But Indian officials will cling to the hope that they can knock a few percentage points off the higher rate through negotiations in the coming week. India, which America is supposedly courting as a geopolitical partner, will not fail to notice that its neighbour and antagonist Pakistan has a tariff of only 19%, down from the 29% rate touted on April 2nd.
A third group of countries has yet to negotiate at all. Some are too small to recapture the president's attention. They were given their own tailored tariffs on April 2nd, based on a crude calculation of their trade imbalances with America. But they were shown some benign neglect in the July 31st order. Thus tiny Lesotho, a landlocked country in the south of Africa, will pay 15%, like many other African countries, not the 50% horror that was announced on April 2nd. The remainder of this group is in more of a pickle. They once again face something similar to the Liberation Day scenario, or are even worse off. Turkey, for example, has seen its rate rise from 10% to 15%.
All these tariff rates will be added to Mr Trump's other levies—on cars, car parts and metals—as well as many he inherited when he returned to office. Some goods, including electronics and energy products, are excluded. If the various tariffs are weighted by last year's imports, the average rate faced by America's biggest trading partners ranges from less than 3% for Ireland to over 40% for China.
Shortly after Mr Trump's latest hikes, the Bureau of Labour Statistics reported that American firms added just 73,000 jobs in July—well below expectations. Some of the slowdown may reflect trade uncertainty. When levies go up, firms shift their investments in response. When they go up, down and up again, firms simply delay their investments in response.
The tariff threat has, at the very least, made it harder for the Federal Reserve to buoy America's economy by cutting interest rates. This week Jerome Powell, the Fed's chairman, defied both the president and two members of the central bank's own board to keep rates unchanged. The consequences of tariffs for inflation 'may be less than people estimate or more than people estimate,' he said, but 'they're not going to be zero'.
Even when consumers buy American, tariffs can appear in the supply chain of the goods they purchase. According to our estimates, personal computers, tablets and peripherals have endured the biggest impact from tariffs: the burden amounts to 17% of consumer spending. Other items that have been affected include big household appliances and smaller personal-care devices, such as electric razors. As tariffs rise even higher, they will shave even more off the spending power of America's citizens.
The world's financial markets seem willing to 'look through' Mr Trump's antics. America's currency, shares and bonds all plunged after the Liberation Day shock, but they have taken his encore in their stride. Investors are beguiled by the technological revolution on the horizon and blind to the commercial havoc under their noses. When American consumers start paying even more for the goods and services they enjoy, they may not be so far-sighted.
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