menu_open Columnists
We use cookies to provide some features and experiences in QOSHE

More information  .  Close

The Tariff Wars

22 1
23.04.2025

A cartoon showing Donald Trump and Xi Jinping arguing into the twenty-second century, and progressively levying tariffs of a billion percent on each other, captures the essence of present developments. Probably, world leaders have to be reminded that levies beyond a point are meaningless ~ guaranteed only to bring international trade to a standstill.

High tariffs will result in a debilitating shortage of manpower and electronic equipment in America, and its economy and social life will unravel; China would have a surfeit of machinery and electronics, but would lack basic food items and entertainment; poorer countries would simply struggle for survival. Apparently, Trump is trying to fulfil his election-time promise of levying tariffs on countries which were ‘ripping off America.’

Advertisement

The timeline of Trump’s tariffs, a precursor to a full-blown trade war, is given in the chart: The ostensible justification of Trump’s high tariffs, is a desire to rejuvenate the US manufacturing sector, and reduce the country’s huge trade deficit of US$ 1 trillion. However, according to classical economic theory, trade deficit is not a bad thing, particularly for the US.

Advertisement

A trade deficit shows that foreigners are sending more goods and services to the US than what the US is sending abroad, making Americans prosperous at the cost of other countries.

Payment for US imports costs little, as it is made in US dollars, which the US prints freely. Since the dollar is the primary currency for world trade, and wealth in a secure form, so foreigners hold on to their dollars. Additionally, foreigners use their dollars to buy US bonds and shares, supplying capital to American companies. President Trump’s plan to eliminate the trade deficit will reduce imports, and thus dent American prosperity. Also, it will reduce the capital available to US corporates.

Again, according to economic theory, world trade........

© The Statesman