The latest move by the American president is significantly reshaping global trade, as he has introduced import tariffs that apply globally to all countries and products. While the introduction of tariffs may not have come as a surprise, their magnitude and the methodology used to determine them shocked both the world and capital markets. For instance, the EU was hit with a 20 percent tariff, while China received a 34 percent rate. Although it is difficult to predict the precise effects in such a situation, a chart by Statista illustrates that as a result of these measures, the effective tariff rate (calculated based on the tariffs actually paid) could rise to levels not seen in nearly a century.
It is true that, on average, according to WTO data, the United States maintained a lower import tariff level than its major trading partners. However, the difference was only a few percentage points at most and applied only to certain product categories, such as agriculture or vehicles.
The current tariffs, which are broad-based, covering almost all products, and set at substantial levels based on the United States’ trade balance with each country with the aim of equalizing bilateral trade, raise several economic concerns and appear excessive. The first responses have already arrived: for example, China has announced a retaliatory import tariff of 34 percent, which could mark the beginning of a severe trade war.
Last week’s announcement marks the beginning of a new world order. The global economic system based on free trade and rooted in the theories of Adam Smith and David Ricardo has come to an end. In its place emerges a multipolar world fragmented by tariffs and other trade restrictions. It increasingly appears that everyone will have to pick a side, or, in less fortunate cases, the side may choose the country, and mingling with the opposing team in the schoolyard will no longer be allowed.
Just as the dismantling of trade barriers after 1980s brought about stable and moderate inflation, robust economic growth, and, for many poorer nations, historically rapid development, we can now expect higher inflation figures and significantly weaker economic momentum in the near future. This bitter pill might be somewhat sweetened if our alignment proves more fortunate than during the last era of geopolitical bloc formation.
Moreover, the chart clearly shows that these changes will not unfold over decades, but, if somewhat exaggerated, in a matter of days. Swift recognition of the situation and the ability to respond will now be critical. We have entered stormy waters not seen for generations, and the role of experienced captains is about to become dramatically more valuable.
No posts
Comments
Nothing yet. Say the first thing.
Sign in to join the conversation.