Trump’s trade agenda: About US jobs or global supremacy?
Summary
The answer may determine what to expect of US trade negotiations with others after its deal with the UK and tariff truce with China. Both need to be read carefully for clues of what the US president hopes to achieve.
is a question much of the world has struggled to answer for weeks since US President Donald Trump imposed sweeping tariffs on trade partners, as well as no-commercial trade geographies inhabited only by penguins and seagulls, and then put them mostly on pause. He raised tariffs on China, then raised them some more in response to Beijing’s retaliation, only to pause those too. More tariff announcements were made and rescinded.
We still don’t have definitive insights into what ‘grand strategy’ is guiding Trump’s chaotic tariff agenda. But clues have begun to emerge.
It’s clear that the White House is using its ‘Liberation Day’ tariff announcements as bargaining chips to pressure large US trade partners to come to the negotiating table and accept its demands. The deal with the UK and the 90-day trade détente it reached with China provide some idea of the outcomes for which the White House is negotiating bilaterally with trade partners.
Also Read: Tariff whiplash: The US truce with China offers hollow relief
First, the US tariff on British goods has been retained at 10% in a deal with the UK, which suggests that the baseline tariff could be set at that level, up from the less than 3% rate before 2 April, ‘Liberation Day.’ The White House may be aiming to raise US tariff rates to levels Trump campaigned for: 10-20% for most countries and 60% for China. These rates would be much higher than the levels before 2 April and are not good news for trade and the global economy.
Second, the White House can also be expected to use bilateral negotiations with trade partners to make them cut China out of supply chains. The US-UK deal has cut tariffs on British cars and steel but made this relief conditional on the UK meeting US ‘national security’ requirements for supply chains. The US concern seems to be that other countries shouldn’t serve as back doors for Chinese goods sent to the US and suggests an import preference for products made without Chinese components.
India may find it difficult to untangle imports from China from its exports to the US. India’s negotiations could become tricky, given that we run a chronic, large and widening trade deficit with China and a big and growing trade surplus with the US.
China, which had initially refused to buckle under the threat of a tariff war, has climbed down and agreed to a 90-day trade détente with the US after Washington struck a deal with the UK.
Also Read: Will a US-China trade agreement work? Don’t count on it
Beijing protested the US deal with the UK saying that trade deals between nations should not target third countries, but still went in for a truce with the US, although the latter’s tariffs on Chinese goods will remain much higher during this pause period than they were before Trump took office. The US cut tariffs for 90 days on goods from China to 30% from 145%. China dropped tariffs on US imports from 125% to 10%.
This cool-off demonstrates that neither side wants a full-blown trade war, which is a relief for the global economy. Trump has since declared that decoupling the two economies isn’t his goal—‘fewer dolls for Christmas’ may not be a vote-winner. But the main target of Trump’s tariffs agenda will still be China.
We can expect US trade negotiators to try realigning global trade and use bilateral negotiations to force countries to align with its interests against China. How Washington may pursue this goal isn’t clear as yet. It would depend on whether the Trump agenda is simply about addressing dissatisfaction among US voters over stagnant wages and de-industrialization or if it extends to tackling the challenge to US supremacy from China’s economic and military ambitions.
Also Read: The time is right for a reset of India’s trade ties with China
The US has long felt frustrated over China’s use of subsidies and currency manipulation in trade support, apart from its alleged misuse of intellectual property, even as China has challenged US competitiveness old industries and technologies of the future.
The Biden administration saw US economic dependence on Chinese imports as a national security threat. Articulating its plans for renewing American economic leadership and a “new Washington consensus," Biden’s national security advisor Jake Sullivan had cautioned that Beijing could exploit dependencies for economic or geopolitical leverage, given its military ambitions. (shorturl.at/fHSKQ).
Today, it seems that a new global trade chapter is being written messily and hastily in which the US is trying to replace the rules-based economic order with one based on crude power. Countries may have limited bargaining space against Trump’s trade negotiators. His Liberation Day tariffs were in the name of ‘national security.’ Countries cannot challenge them even if they want to, as successive US administrations have rendered the World Trade Organization’s (WTO) dispute resolution mechanism dysfunctional by stalling key appointments.
Also Read: Will the WTO get crushed under an avalanche of bilateral trade deals?
Dissatisfaction had been growing with the rules-based order in the West over China’s defiance, while other countries often saw it as loaded in favour of rich countries.
Tariffs may not be the most effective instruments for the goals being pursued by the White House or for addressing weaknesses in the rules-based system that the US helped create. Ideally, WTO reforms should collectively be pursued.
Washington’s bilateral deals may not lower American dependence on imports from China all that much, but we can expect other large US trade partners, such as the EU, to play along with its plan for cutting China to size.
The author is consulting editor, Mint, and senior fellow (consultant), ICRIER.
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