Tag Archives: Tariffs

Economic, Government, Politics, Society, United States

With or without tariffs, Trump has reshaped the world

GLOBAL ECONOMY

When the US Supreme Court ruled that Donald Trump’s tariffs were illegal, he reacted with characteristic fury saying the decision is a “disgrace” and that the judges have been swayed by “foreign interests”. Trump then asserted that he has a back-up plan ready to go.

Over the next few days, he may well use all the power of his office to find a way of reimposing additional levies on everything America imports (on top of the 10pc he has already announced).

And yet, despite all of the drama of the decision, it may not make a great deal of difference. Tariffs have already fundamentally reshaped the global economy – and there will be no return to the old order now.

The decision of the Court was split by six votes to three, but was still clear enough. By relying on a 1977 law meant for national emergencies to impose sweeping tariffs on everything from cars to toys to microchips, Trump exceeded the power of his office.

In peacetime, it is the role of Congress to decide on import levies. Trump can try to find another legal route if he wants to; but for now, his original tariffs are dead in the water.

So, does that mean we can all go back to the global trading system that has reigned for the last half-century? One in which the rules-based order is back, where free and open trade is restored, and where globalised supply chains can operate without any barriers? Well, not exactly.

As much as the European Union, the World Trade Organisation, and the gatherings of Davos might want it to, there is no going back to the old system. The world has changed too much since “liberation day” last April for that to happen.

To start, Trump has already said he will impose an additional 10pc global tariff, on top of the levies he has already forced through. Is that legal? At this stage, no one really knows.

The president is planning to use a section of the 1974 Trade Act which allows him to set import restrictions for 150 days, and it will probably be another year or more before the Court delivers a verdict on that decision.

By then, he may well be using another obscure piece of legislation, and then another. Trump is determined to impose tariffs, and will use all the power of the White House to make them stick. He doesn’t care how often the Court rules against him.

More significantly, just look at some of the ways that the global trading system has changed over the 10 months since the tariffs were first imposed.

Europe has already decoupled from the US as much as it can, and, where that hasn’t been possible, made concessions to hold the fort.

Japan has opened up its market to American rice, and will feel nervous of putting up barriers again simply because the Supreme Court ruling might mean it can do so.

China has started to build its own computing and chip industry, replacing the American hardware that it used to depend on.

Global conglomerates, such as Britain’s AstraZeneca for example, have already committed billions of dollars to building factories in the US to make sure their products are on the right side of the tariff wall, and, with those contracts already signed, there will be no movement to scrap those plans now. The list goes on.

The supply chains that span the world have already been reconfigured, and it is too late now for a complete reversal, even if some wanted to do it.  

Many of the senior figures around Trump probably suspected all along that the tariffs were illegal, but decided to go ahead anyway. They knew they would never get Congress to agree to them, and figured that a year would be enough time for the levies to change the global trading system.

In that judgement, then, they were correct. Surreptitiously, or maybe with some good fortune, they may even end up with the best of all possible worlds. The global trading system will have been reordered, and largely in America’s favour, with the tariffs as the battering ram.

But the levies themselves, with all the price rises for ordinary consumers that they triggered, will have to be ditched. The result will be falling inflation, and the Federal Reserve will be able to cut interest rates. That will help going into difficult mid-term elections later this year.

It will be messy over the next few weeks. The Trump presidency is a chaotic wild ride, and no policy has proved more disorderly than tariffs. We still don’t know if the White House’s new legal tricks will work? Or whether the president will try to persuade Congress to impose tariffs for him?

We don’t even know yet whether the billions of dollars in revenue collected from the tariffs will have to be repaid by the American government, and if so whether it is the manufacturers, the retailer, or even the consumer who will get the refund? Even by Trump’s standards everything is up in the air.

One point, however, is surely cast in stone. We are not about to return to the old trading system any time soon.

Trump has already reshaped the way goods move around the world. The huge trade imbalances between the US and the rest of the world will keep on being reduced. Manufacturing will move closer to the consumer. Trade flow will reduce, and barriers will remain in place.

Whether that will be better or worse than the old system is open for debate. Prices may well be higher, but against that there may well be better paid blue-collar jobs, and countries will rely more on their own resources.

Either way, that is the new reality, and one that Trump has created – and whether we like it or not, it will take more than six Supreme Court justices to stop that process now.

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Britain, Economic, Government, International trade, Politics, Society, United States

UK-US trade deal: Parliament must vote on any agreement

TRADE DEAL

Intro: Abolishing tariffs would be welcome for UK firms, but not at the price of reducing high regulatory standards or a reset with the European Union

LOOKED at dispassionately and objectively, a bilateral trade agreement between Britain and the United States is of relatively small economic significance to this country. Even ardent supporters of UK-US relations will find it difficult to argue otherwise. Back in 2020, for instance, Boris Johnson’s government estimated that a US deal “could increase UK GDP in the long run by around 0.07%” – a statistical calculation that is not exactly transformative. The view touted by some Brexiters that a US trade deal would fire up the entire British economy was always fantastical. Based on the assumption of a yearning for deregulation, there was little public support, even among leave voters themselves. Any urge of that kind now is even more delusional, in the wake of Donald Trump’s tariff wars.

The deregulatory alarm is hopefully a thing of the past. But global trade has new traumas too. Trump’s protectionist policies and bullying of US rivals are resetting the terms. There are nevertheless specific reasons why it is in Britain’s interest to pursue free trade talks with the US. Chief among these is the direct threat posed by current tariffs, especially on cars and pharmaceuticals. There is also the distinct prospect that a 10% tariff will be re-imposed on all UK exports to the US after the current 90-day pause ends in July.

The problem with any trade deal lies with the prices that the US may try to extract for tariff reductions or exemptions. And while the U.S. vice-president, J.D. Vance, has said that he sees a “good chance” of a deal, this could still be contingent on UK concessions in sectors such as agriculture, sanitary rules, and digital regulation. These are the same sectors that, for good reason, proved to be stumbling blocks in the post-Brexit discussions. Efforts to rebrand things like AI, biotech, and digital infrastructure, as strategically vital industries of the future, do not dispel some real threats now facing British food standards, healthcare, or online controls.

All this is multiplied by the Trump administration’s unreliability and geostrategic approach. Trump’s policy in Europe is to weaken and destroy the EU. Urged on by right-wing Brexiter politicians, the president sees pulling Britain away from the EU’s orbit as part of that effort. So, however, does the EU. As a result, any attempt by Washington to offer generous terms to the UK in particular sectors is likely to make any reset with the EU far more problematic. Sir Keir Starmer says that Britain does not need to make an either/or choice. Insisting that Britain can have its cake and eat it, that’s hardly the brutal reality being faced; neither the US nor the EU will necessarily take the same generous view that Starmer holds.

Even if the prospective UK-US deal is less wide-ranging than it once might have been, it is still significant. Politically, the Trump factor also makes any such deal more explosive. UK treaties and international trade deals are traditionally delivered under prerogative powers. As the Brexit argument about a “meaningful vote” showed, there is a very limited role for parliament. That needs to change. It would be intolerable in the UK-US case. This is clearly a matter for parliament to debate, both during and after negotiations, and for both houses of parliament to vote on.

In recent days, the Labour chairs of the Commons foreign affairs and trade select committees called for such votes. The Liberal Democrats and the Scottish National Party are both in favour. The UK government should make clear that no agreement will go ahead without a meaningful Commons vote in favour. Democracy cannot be usurped on this issue.

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China, Economic, Government, International trade, Politics, Society, United States

Global trade war: America is advancing its own decline

ECONOMIC

Intro: China is braced for economic turbulence due to swingeing tariffs. But it sees an opportunity by taking the longer-term view: a decline in US hegemony 

THERE can be no winners in Donald Trump’s ferocious trade war that he has unleashed, least of all among consumers and workers. In strongarm tactics, this has become a game of who can bear more pain. And because trade is at the heart of US ties with its biggest tariff target, China, the rest of the bilateral relationship is likely to deteriorate. That too is concerning.

Yet, paradoxically, despite the economic struggles of recent years, China may see a longer-term opportunity in the current crisis. Beijing’s response to the initial US tariff announcements was measured. Now it vows to “fight to the end” and has imposed an additional 50% tariff on US goods – taking total tax charges to 84% – in retaliation for reciprocated tariffs that Mr Trump now says will hit 125%.

Such an approach is unlikely to falter first. Any concessions would likely be taken as a sign of weakness, encouraging the US to ramp up the pressure even more. Xi Jinping is also a strongman who has dialled up nationalism as economic growth has slowed. Backing down would be humiliating, especially when the US vice-president, JD Vance, speaks dismissively of “Chinese peasants”.

Beijing is already allowing the yuan to weaken, but a major devaluation in the currency is thought unlikely. It has been preparing for this moment. China’s demographic boom is at an end, Mr Xi’s new vision for his nation, the impact of the pandemic, Donald Trump’s first term in office, and US bipartisanship have all turned against China in reshaping the world economy. But China has diversified in areas such as agricultural imports and found new markets for its goods – though exports to the US still account for just under 3% of its GDP. In recent weeks, it announced plans to “vigorously boost” domestic consumption, although previous action on that long-held ambition has not matched the rhetoric.

Mr Trump’s sudden announcement that he is suspending punitive tariffs on other countries for 90 days highlights an apparent underlying intention to make them distance themselves from China and stop them being used as a conduit for its goods. Still, if he goes ahead, high rates risk pushing them towards Beijing instead. Trump’s erratic policy may also reflect growing anxieties about the impact of those tariffs, not least among his own supporters. China is quietly confident that the U.S. will come under growing pressure to rethink from billionaire backers, ageing workers worried that their retirement funds are losing value, farmers, employees fearing for their jobs, and consumers contemplating higher prices in everyday consumables. A bilateral deal is not impossible, but sense needs to be restored.

Beijing does not like what lies ahead. But in the longer term, it has more confidence in its trajectory. It looks back to the 2008 financial crisis, when it “saved the world” with its massive stimulus package, and looks ahead now with emboldened self-assurance following its launch in January of its AI DeepSeek platform.

Above all, Beijing believes that when this storm has passed, few will regard the US as a dependable economic or security guarantor, with China becoming a more predictable and likeable partner. At February’s Munich security conference – where Mr Vance’s sneering attacks on European allies made the headlines – China’s foreign minister, Wang Yi, pledged that China would be “a steadfast constructive force” and “factor of certainty in this multipolar system”. Some countries may feel forced to live with Beijing’s own trade and investment restrictions, and its use of economic coercion for political purposes. But others may simply drift from America’s orbit.

China expects to suffer, but as it watches on it will not be entirely unhappy as the US advances its own decline.

This is a transformational moment in the global order.

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