Closed for Business | Trump’s Tariffs

GlobalResearch.com | Dr. Binoy Kampmark

Liberation Day, as April 2 was described by US President Donald Trump, had all the elements of reality television perversion.  It also had a dreamy, aspirational hope: that factories would spring up from rust belt soil in a few months across the United States; that industries would, unmoored from the globe, become vibrant and burgeoning.  The world’s largest importer had decided to turn back the tide.

The imposition of what Trump calls reciprocal tariffs was broadly savage.  Over 180 countries fell within their scope.  A baseline tariff of 10% was applied on goods imported by the US.  Countries were then singled out for being particularly mischievous, in the eyes of the administration, not so much for having their own tariffs on US goods and products so much as having an unsporting surplus.  For China, the new rate is 34%.  For Vietnam: 46%.  Taiwan: 32%.  Cambodia, a stunning 49%.

The malleable rules of reality television intruded with Trump’s chart of countries and tariff rates, as revealed in the White House Rose Garden.  (He would have had a bigger chart, but for the wind.)  “Reciprocal – that means they do it to us, and we do it to them,” the president ventured to explain.  “Can’t get simpler than that.”

Simple it was, given the rough and ready formula used to arrive at the figures. The Office of the United States Trade Representative offered a rationale:

“Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the US and each of our trading partners.  This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing.  Tariffs work through direct reduction of imports.”

This, however, did not evidence itself in the final calculations.  Central to the approach was a simple examination of trade in goods deficit from 2024, divided by the value of imports.  Professing kindness, Trump offered to discount the amount by halving the arrived at figure.  To illustrate, the goods trade deficit with China was US$291.9 billion, and total goods imports US$438.9 billion.  When divided, the figure arrived is 0.67 or 67%.  On being discounted, the final tariff rate is 34%.

This method seemed to eschew the promised, detailed evaluation that would have accounted for tariff and non-tariff trade barriers, including distortions allegedly caused by currency manipulation, local regulations and laws, and taxes such as value added tax.  This is despite the remarks by the Office of the Trade Representative that the rates were calculated taking into account such matters as “[re]gulatory barriers to American products, environmental reviews, differences in consumption tax rates, compliance hurdles and costs, currency manipulation and undervaluation”.

Theories are being offered for the absurdly high rates being applied to certain poorer countries, notably those in Southeast Asia and Africa.  The most logical point is that the applied rates arise because the countries in question are, as economic historian Adam Tooze explains, relatively poor.  “The US does not make a lot of goods that are relevant to them to import.”  They are hardly likely to redress any trade imbalance by increasing their consumption of goods produced in the US.

Siwage Dharma Negara of the ISEAS-Yusof Ishak Institute in Singapore assumes there is a lurking strategy at work. 

“The administration thinks that by targeting these countries, they can target Chinese investment in countries like Cambodia, Laos, Myanmar, Indonesia.  By targeting their products maybe it will affect Chinese exports and the economy.”

If that is the plan, then it risks doing quite the opposite.  In the first instance, American brands have set up factories in a number of states in the region, encouraged by the adoption of the “China plus one” strategy.  In line with that approach, manufacturers shifted production from China to alternative countries.  Apple, Nike and Samsung Electronics, for instance, have established lucrative operations in Vietnam.  Apparel companies such as Gap, Abercrombie, Adidas and Lululemon are reported to source 27 to 47% of their goods from the same country.

A similar pattern is to be found in Africa, where companies were encouraged to invest on the continent as part of the African Growth and Opportunity Act (AGOA), a trade scheme due to expire in September.  The AGOA, in place since 2000, grants eligible sub-Saharan African states duty-free access to the US market for over 1,800 products to complement over 5,000 products deemed eligible under the Generalized System of Preferences program.

The second likely outcome is pushing these bruised countries into eager Chinese arms.  Those in Southeast Asia would, suggests Stephen Olson, former US trade negotiator, gravitate away from Washington.  “A closer tilt to China could be the result.  It’s hard to have constructive, productive relations with a country that just dropped a ton of bricks on your head.”  Ditto Africa, where Beijing already occupies an influential role in trade and investment.  The law of unintended consequences looks set to apply.

Original Article: https://www.globalresearch.ca/oddities-trump-tariffs/5883488

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