Trump's foolish war on the world is a mess

The Age

2 days ago

Further complicating matters is that the administration has imposed the 10 per cent baseline tariff rate, foreshadowed the so-called reciprocal tariffs (there's nothing reciprocal about them) and has already imposed additional sectoral tariffs on steel and aluminium, products derived from those metals, autos and auto parts and foreshadowed more of those targeted tariffs.
That makes the negotiations multidimensional and the overall outcome, once there is one, very messy. Each of America's major trading partners will have unique deals – a mix of an overall rate plus the sectoral tariffs – whether negotiated or imposed.
The agreement with Vietnam, and what's known about discussions with other major trading partners, provide some insights into what the US is trying to achieve, although details are sketchy – Trump announced the deal with Vietnam on his Truth Social platform.
'Vietnam will pay the United States a 20 per cent tariff on any and all goods sent into our Territory, and a 40 per cent Tariff on any Transhipping. In return, Vietnam will do something they have never done before, give the United States of America TOTAL ACCESS to their Markets for Trade,' Trump wrote (in his usual unique style).
'In other words, they will 'OPEN THE MARKET TO THE UNITED STATES,' meaning that, we will be able to sell our product into Vietnam at ZERO Tariff,' he wrote. Trump thinks Vietnam, with per capita incomes of about $US4500, would be a good market for American SUVs, whose prices range from $US30,000 to about $US80,000!
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Leaving aside the reality that it won't be the Vietnamese paying the import duties but the US importers, the rate on Vietnam's export to the US has just doubled.
During Trump's trade war with China in his first term, a lot of companies that had used China as their manufacturing base shifted their factories to Vietnam. Others set up entities that finished semi-manufactured products from China to qualify as Vietnamese sourced products and there were those who simply re-labelled Chinese products as made in Vietnam.
Since then, exports from Vietnam to the US have soared. Last year, for instance they jumped 33 per cent. Vietnam exported $US136.6 billion ($A207.5 billion) of goods to the US in 2024 but imported only $US13 billion.
The 40 per cent rate for 'transhipping' is squarely aimed at China, which is acutely aware that in most of the negotiations the US is trying to restrict efforts by Chinese companies to circumvent the 55 per cent tariff the US has imposed on its exports to the US and reduce its trade with third countries and access to global supply chains.
Trump's 'liberation' of America will come at a heavy cost.
The deal with Vietnam will, if it can be policed (a major 'if' for all these trade deals), hit China's exports of components and the rebadging of Chinese goods as 'Made in Vietnam.'
Similar demands are being made of the EU and other Asian and Latin American economies, some of which (including Germany) have significantly greater trade relationships with China than they do with the US.
China has already warned that it won't accept US attempts to throttle its exports, with the Ministry of Commerce saying last weekend that 'of this happened, China will never accept it and will resolutely counter it to safeguard its legitimate rights and interests.'
China, of course, has a more powerful trade weapon than Trump's tariffs that it can deploy. It demonstrated in the trade confrontation with the US earlier this year, when there was an exchange of absurdly high tariffs that ended in an uneasy truce, that its dominance of rare earths can be weaponised.
There's not much advanced manufacturing that can occur without access to rare earths and rare earth magnets – China could shut down the US auto industry almost overnight by cutting off supply and do substantial damage to America's defence capabilities. It could also use that leverage against countries co-operating with the US to shrink its exports.
Trump's attempt to dictate lop-sided terms of trade with America's trade partners hasn't been as straightforward as he anticipated because they impinge on other countries sovereignty and are complicated by their domestic politics.
Negotiations with Japan have stalled because the US has imposed a 25 per cent tariff on Japan's auto exports and Trump has demanded Japan open its heavily protected market to American rice.
Japan's auto industry generated about 10 per cent of its GDP and employs about 8 per cent of its workforce. While it exports about 1.4 million cars a year to the US, it makes a lot more – about 3.3 million a year – within the US.
Japan's trade negotiators have made it clear that, while they are happy to commit to buying a lot more LNG and military equipment from US, the tariff on its auto exports is a dealbreaker.
Rice is another non-negotiable, even though Japan is experiencing a shortage of the staple. The agricultural lobby within Japan is powerful and its support critical to the ruling Liberal Democrat Party, which faces an election later this month.
That suggests its tariff will be set at 24 per cent – the rate announced on April 2 – although Trump has said that, if there is no deal, it could be 35 per cent 'or whatever the number is.'
Trump's 10 per cent baseline, sectoral and China tariffs have already raised the effective tariff rate on imports to the US from around 2.5 per cent into the mid-teens.
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Drawing a line from the deal with Vietnam and the likely outcome of the talks with Japan, it is conceivable that that rate could double again once the reciprocal tariffs are unveiled.
Trump's tariffs will raise a lot of revenue, but contrary to what he says and appears to believe, it will be from US companies and consumers, will drive up consumer prices and inflation and/or drive down US profit margins and economic activity and damage relations with America's trading partners, including its closest allies.
Trump's 'liberation' of America will come at a heavy cost.