The Trump tariffs have caused apoplexy in the country, even though there is a 90-day pause. There are folk here who have panicked far more than any others in any other part of the world, keeping in mind that the U.S. President’s latest round of tariffs left no country untouched.
The markets have tumbled, almost elsewhere, and some in the Opposition ranks are, of course, nakedly prancing around in glee.
In this writer’s estimation, the entire global response to these tariffs are a rather unnecessary over-reaction. It would over time perhaps be seen as the most ridiculous reflex that most sane people in the world cratered to, in a long time.
Of course, a 44 percent tariff on major exports to the U.S. would be felt in Sri Lanka, but then again these tariffs could be negotiated. Taiwan, Vietnam and many other countries — over 50 at the time of writing — have expressed willingness to start from a zero tariff point of their own, vis-à-vis the U.S., and in this writer’s mind, there is no reason Sri Lanka cannot consider something on the same lines.
alternatives
Besides that, it is a banshee reaction to cry out loud whenever one country raises its tariffs, however powerful that nation may be. There are alternatives to be looked at always, and sometimes, the disadvantages can be converted to the biggest advantages, the way Vietnam did positioning themselves as the alternate hub to China during the Covid-19 pandemic.
As for the global situation, it is far too early to consider the Trump tariffs as a final, indelible line drawn in the sand. It is in fact anything but. The whole tariff rationale of Trump’s is being misconceived as an attempt to create a vast manufacturing empire in the U.S., rivalling what it was to the world several decades back from the 50s to the 80s.
Though certainly it is foreseeable that the U.S. President wants to bring some manufacturing back to his country, creating jobs and production the economy badly needs, it would be quite a stretch — even a display of naïveté — to think that the idea of these tariffs is to make the U.S. the world’s central location for manufacturing everything from cars to bras.
That is a colossal misreading of the obvious writing on the wall. What Trump wants in the main to accomplish with these tariffs is to make sure that unfair levies of all sorts against the U.S. by its trading partners are made to disappear, and there is a more level playing field when it comes to trade between the world’s number one consumer, and other countries that deal with it.
He also wants to erase those trade imbalances as much as possible because the U.S. economy would become untenable if there is relatively little by way of money flowing inward by way of revenue generated through exports.
Why aren’t the markets not pausing to consider some of these somewhat obvious realities with regard to these latest rounds of comprehensive tariffs declared by the U. S. President? It is because the markets always react this way, when unexpected new developments occur that may upset the status quo with regard to global trade and commerce. The markets — like bears and bulls — operate on reflex.
The reality is that the new tariffs are not going to end up as an endless bout of trade wars between countries in which there are tariffs upon tariffs imposed by nations on each other ad nauseam, until global trade essentially comes to a standstill. Of course, there would be some element of reciprocal tariffs no doubt and some countries would at least go down the route of trade wars at least momentarily.
But, that will not happen long term because eventually it is almost guaranteed that trade-warring parties — both the U.S. and its trading adversaries if you will — would buckle down to negotiations, because an endless trade war is a lose-lose situation for any two countries engaged in that type of escalation.
The U.S. is still a huge market and most countries would most certainly not want to see that vast realm of trading possibility disappear and fall out of their grasp. As for the U.S. President, he sees that his country, and the strength of the dollar as the reserve currency of the world is threatened if the U.S. economy runs massive trade deficits with other countries, while simultaneously being caught up in badly lopsided trade practices because, the fact is, a lot of countries have put up walls of tariffs against U.S. manufactured goods, while the opposite of that is not true in most cases.
Trump seems determined to make vast changes to the U.S. economy, hitherto unprecedented, such as taking drastic measures to shrink the Budget Deficit, accompanied with other plans such as tariffs to bring money into the country in contrast to the massive cash outflows that have resulted from the no-production/all-import trade practices that have been spawned in the past few decades.
Over time, if negotiations over these tariffs succeed — it is more a when, not if — the current convulsions would recede to the background, and normal trade between the U.S. and its trading partners would resume. But the likely upshot of all this is also that contrary to all predictions, the U.S. economy would improve over time, not necessarily because more manufacturing is bound to return to the U.S., though some of that will likely happen too, but because the tariffs would create a money inflow into the country after all of the negotiations regarding trade imbalances and existing levies against U.S. exports bear fruit.
At the moment, of course, it is a bitter pill to swallow and there would be some momentary disruption of markets as is predictable. But certainly, the world would be in a better place if the U.S. economy improves over time and the dollar firmly re-affirmed as the reserve currency, staving off the current challenges to that status that have come up from various quarters.
It is unlikely that any country would be able to re-set the impact of these tariffs imposed by the U.S. without giving anything in return. Some of the more powerful among the trading partners of the U.S., of course, would engage in some type of tit-for-tat, and impose reciprocal tariffs at least creating the illusion that there would be an endless trade war, but any reciprocal tariffs would likely be for the sake of appearances.
Powerful countries in particular do not want to be seen as abjectly losing to the U.S. in the tariff game, so they are bound to up the ante and reciprocate at least to some degree. But once the score is settled on the surface as it were, and the appearance is created that these countries did not cave in, they would all likely settle down to negotiations and arrive at a position in which they would be able to have continued access to a broad swathe of U.S. markets.
Small wonder then, that the U.S. President says that sometimes the medicine needs to be swallowed. That applies in almost equal measure to the citizens of his country, as well as its far flung trading partners.
market
It seems the U.S. became the kind of economy that made other countries consider the country as a vast market —a market alone not necessarily populated by living, breathing humans — to be milked to the last dollar. But that approach cannot be sustained. The country cannot, in simple terms, go on being essentially non-productive — apart from providing financial services — and non-revenue earning, and still expect to continue to be the strongest economy on Earth.
It seems Trump wants to take some bold moves to buy back the undisputed status of the U.S. as the world’s leading economy with the strongest money to back it up i.e: the dollar as the unquestioned reserve currency of the world. The markets, of course, want continuity and are extremely sensitive to any type of adjustments to the existing trading order, and that is to be expected. The markets are sensitive to most things, and why wouldn’t they be sensitive to a substantial global re-set? But predictions of impending recession and further disaster are almost certainly vastly exaggerated.
