Overturning the global trade system, Trump puts his ideas to the test

Time of India

2 days ago

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President Donald Trump 's plan to impose stiff tariffs on dozens of trading partners next week will bring about one of his longtime goals: smashing a global trade system that he believes has robbed America of jobs and money.The double-digit tariffs that the president has announced on nearly 100 countries represent a momentous change from the trading order that the United States has helped to build up globally since World War II.They will scrap the low import taxes that the United States agreed to charge on all exports from members of the World Trade Organization in favor of much higher tariffs that vary widely from country to country. That will shift the playing field for many companies and set a new course for trade flows and the global economy in the years to come.For Trump, the moves accomplish a campaign promise to use stiff levies to rebalance global trade to try to benefit America. The president and his economic advisers believe that tariffs will reduce the flow of imports into the United States and increase U.S. exports , bolstering the factory sector and creating more prosperity while filling government coffers But critics have said the approach will leave the United States more economically and diplomatically isolated, while drawing other parts of the world closer together. And many economists remain skeptical that tariffs will work in the way Trump intends, saying import taxes will spill over into higher prices for consumers, backfire on some manufacturers and slow economic growth Data released Thursday showed inflation picked up in June, the latest sign that tariffs were starting to bleed through to consumer prices. On Friday, the government also reported a significant slowdown in job growth, a sign that the blow of punishing tariffs may finally be landing on the economy.'The United States has destroyed the global trade system it created and left nothing in its place but a set of ad hoc arrangements,' said Edward Alden, a trade expert at the Council on Foreign Relations. 'For trade, the result will be long-term instability that will be bad for business, bad for consumers and bad for global growth.'The series of executive orders that Trump signed Thursday will raise tariffs on more than 90 countries by levels ranging from 10% to 41%. In so doing, they put in place a vision for global trade that the president first introduced in a Rose Garden ceremony at the White House on April 2, which he called 'Liberation Day.'In April, Trump announced that he would impose a 10% tariff on nearly all global imports, as well as significantly higher tariffs on dozens of nations that are net exporters to the United States.The 10% baseline tariffs have been in place for months, but the higher tariffs that Trump wanted to charge on many countries ultimately went into effect for only a few hours. After his approach stoked turmoil in financial markets, the president abruptly paused the levies, saying he would give countries time to negotiate deals that would open their markets to U.S. exports in exchange for lower tariff rates.Over the past few months, the United States has been inundated with trade offers and announced preliminary deals with Britain, Indonesia, the Philippines, Japan, the European Union and other trading partners.Those countries have promised to purchase vast amounts of American energy and airplanes, make investments in U.S. factories and lower their barriers to U.S. farm and industrial goods, while still accepting higher tariffs on their exports. Countries that have signed deals face a 10% to 20% tariff rate when exporting to the United States, while those that do not confront levies of up to 50%.The Trump administration is moving forward with other tariffs as well. It has raised the price of foreign steel, cars and copper, and taxed imports from Canada, Mexico and China over concerns about their role in the flow of fentanyl into the United States.Altogether, the president's changes will lift U.S. tariff rates to levels not seen in a century. According to calculations by Yale Budget Lab, American consumers will face an average tariff rate of 18.3%, the highest since 1934, and up from an average of just 2.5% when Trump came into office this year. That tax increase has started to slow U.S. imports and push up the price of goods, though the changes are taking some time to take effect.Friday morning, after a weak jobs report stoked fears in financial markets, the president wrote on social media, 'The good news is that tariffs are bringing Billions of Dollars into the USA!'Trade experts emphasized that Trump's moves will not only raise the cost of bringing goods into the United States, but will make it significantly more complex to do so. Instead of having one tariff rate that generally applies when bringing in a sneaker or toaster from any WTO country, the president has now assigned every country its own rate, which means a sneaker from Vietnam would be taxed at a higher rate than a sneaker from Italy.Douglas Irwin, a trade historian at Dartmouth College, said that over the past few weeks the world had 'been witnessing the greatest restructuring of U.S. trade policy since World War II.''The United States is moving to a system where imports from different countries are assessed at widely different tariff rates, introducing a degree of discrimination across trading partners that has never been a feature of traditional U.S. tariff policy,' he said.The previous tariffs that Trump is replacing were negotiated over the past 80 years by the United States and its trading partners at the World Trade Organization and its predecessor, the General Agreement on Tariffs and Trade.With a few exceptions, WTO members agree to offer one another the same tariff rates, as a way of ensuring fairness and increasing trade. Members of the organization can still set higher tariff rates globally for industries they want to protect, and lower rates for sectors where they welcome imports. The United States, for example, has long set high tariffs on foreign pickup trucks and apparel, while charging low or zero tariffs on electronics, fish and minerals.Over many decades, the United States worked with other countries to lower import taxes globally, believing it would increase prosperity. Since the general agreement was established after World War II, global trade has grown 45-fold, and U.S. per capita income has soared.But the rise of factories in other countries also led to offshoring and deindustrialization. That destroyed millions of manufacturing jobs, hurt factory towns across the United States and left the United States dependent on foreign sources of medicines, semiconductors and minerals. And WTO members, including the United States, proved unwilling to police trade violations from a rapidly growing China.Those outcomes, combined with growing income inequality and a lack of opportunity for less-educated communities, fueled support for Trump's proposals to dash the existing system in favor of something totally untested. That new system will now set much higher tariffs on countries that run trade surpluses with the United States or have otherwise earned the ire of Trump.Jamieson Greer, the U.S. trade representative, said in a statement Thursday that the president's tariffs had 'accomplished what the World Trade Organization and multilateral negotiations have not been able to achieve at scale,' including market access for American exporters, increased tariffs to defend U.S. industries and investments that would create American jobs.Speaking Thursday morning on Fox Business Network, Peter Navarro, Trump's trade adviser, said the president was leading 'a fundamental restructuring of the international trade environment' and argued that he should be up for the Nobel Prize in economics.'The biggest market in the world has said: 'You're not going to cheat us anymore. We're going to have fair deals,'' Navarro said. 'And everything he's doing has defied the critics.'Over the past several months, Trump has, with the exception of China, been proven right that the U.S. economy is a powerful weapon to wield with its largest trading partners. Europe and Japan ultimately accepted less favorable terms to preserve access to the United States and avoid a painful trade war.But what exactly these changes will mean for the United States and the world remains an open question. Some critics say that the tactics not only could drag on the economy, but strain long-standing American alliances and leave the country increasingly isolated.'The United States has decided to opt out from the existing rules of the world trading system,' said Alan Wolff, a senior fellow at the Peterson Institute for International Economics and the former deputy director general of the World Trade Organization. 'Other countries are very likely to try to trade to a greater extent with each other, given the uncertainties of dealing with the United States.'Wolff said the president was correct that the United States was the world's 'most desirable' market, but accounted for only about 13% of global trade. At least so far, no other country has followed its lead by raising tariffs. He predicted that world trade would continue to grow after the tariffs, though somewhat more slowly than it would have because of the U.S. tariffs.Some have also questioned how permanent this new system will be, given Trump's history of scrapping deals he himself has negotiated. The details of trade agreements with many countries remain unclear, and in many cases still must be worked out.Trump's tariff authorities have also been challenged in U.S. courts and could be overturned in the coming months, forcing the administration to either scrap its levies or, more likely, search for new legal authorities to impose different ones.Aaron Bartnick, a fellow at Columbia University and a former White House official, said that, for Trump, tariffs had become 'the hammer for all economic and political nails.''All of this has been done with no discernible thought to its impacts on broader great-power competition,' he said. 'Trump may hope that fashioning this new order will win him the Nobel Peace Prize. But American taxpayers are more likely to get higher prices and volatility.'