Impact of Tariffs Imposed by US President Trump
The background to the column this week is the global tariffs war started by US President Trump. The world is like a global village today and no country can remain isolated from what is happening in the rest of the world.
A tariff is a tax imposed by a country on the goods and services imported from another country. One of the main reasons is to protect locally produced goods, services and employment, and to equalise or gain a trade advantage. There are other reasons discussed below to understand why tariffs are imposed.
My early work experience in tariffs and international trade started in 1986 on return to the Department of Trade and Industry from secondment to the National Economic Development Office (now defunct). I was posted to take UK departmental lead at Geneva at First Secretary (Trade) level in the talks to harmonise global tariffs. That project was in preparation for the Uruguay World Trade Round (1986-94).
Generally, international trade flourishes with lower or no tariffs and customers benefit from lower prices for foreign as well as locally produced goods due to healthy competition which uses natural resources of countries for the benefit of all.
With higher tariffs, world trade slows down and prices of good and services increase. Tariffs would raise revenues for the government but that is a short-sighted policy because higher tariffs result in higher costs. That is followed by labour demand for higher wages. Many businesses would close and create unemployment.
Experts argue that imposing higher tariffs on goods and services imported by the US is unlikely to work to the advantage of US nor achieve the objectives President Trump has in mind. The benefits gained by liberalisation of trade through successive World Trade Rounds since 1947 will be reversed and global unemployment and poverty in poorer countries will increase.
The most obvious reality overlooked by President Trump about the global trade today is the global interdependence of production and the time it takes to set up new home manufacturing facilities. One example of a car made in the US mentioned that car parts were imported from 24 countries around the world! Not all those parts can be made in the US for some years. If tariffs are imposed on all those parts, even US-made car prices will shoot up sky high! Local customers will buy fewer cars at higher prices and production and sales will decrease and unemployment in the car industry will increase. There will be social unrest and political consequences for President Trump.
As richer countries, spooked by what US is doing to world trade, become more self-sufficient and world trade shrinks, they will buy fewer goods and services from developing countries. Unemployment in many countries will rise and they will become poorer. Alternatively, countries like China can increase trade with them and start influencing government policies of those developing countries from within. China will fill the trade vacuum and start taking over. Overall, that is not good news for the free Western world.
These are common sense arguments which President Trump and his team of advisers should understand.
Gurmukh Singh OBE
Principal Civil Servant retd (UK)
E-mail: sewauk2005@yahoo.co.uk
Sikh ideology articles: https://www.sikhmissionarysociety.org/