Brace for Trump’s tariff strike

The world is waiting with bated breath for January 20 when Donald Trump will return in triumph to the White House. He has already signalled he’ll do exactly as he pleases by appointing an extraordinary cast of lieutenants to top government jobs. He’s also been sending down one thunderbolt after another, threatening to wreak destruction on Hamas on one day and slap sweeping new tariffs on Canada and Mexico on another.

But the greatest face-off will be with the Dragon Kingdom, which is striving to become America’s equal — if not more. Trump has vociferously threatened to impose up to 60 per cent tariffs on Chinese products muscling into the US. The world is watching nervously for a trade war that could upend how countries buy and sell from each other.

The world’s factory

Trump isn’t the type to study other countries’ experiences, but perhaps he should look at India’s attempt to block Chinese goods and cut ties with the world’s factory. Let’s face it: by 2024, India found it needed to trade with China as its effort to teach the Chinese a lesson had failed miserably.

From solar panels to lithium cells, China produces goods in larger quantities and at much cheaper prices in its vast factories.

Trade between China and the US operates on a scale that India can’t even contemplate. Take the automobile industry. India discovered, to its dismay, that even automakers like Mercedes and Hyundai needed to import Chinese electronic parts.

Meanwhile, in the US, General Motors exemplifies this reliance. GM was once said to have quipped, “What’s good for General Motors is good for the country.” It was a misquote but conveyed a popular sentiment. Since 2016, GM has sold 200,000 made-in-China Buick Envision Crossovers in the US. Similarly, Ford, last year, decided to import its Lincoln Nautilus model from China to the US.

And what about the effects of a tariff war on Tesla, owned by Trump’s brashest, most vocal supporter Elon Musk? While Tesla’s Shanghai mega-factory doesn’t sell to the US, relying on domestic-made vehicles, it has exported over one million vehicles to different parts of the world.

It’s a different story when it comes to agricultural products which used to be sold in large quantities in China. Trump, during his earlier term, slapped tariffs on many Chinese products. They retaliated by targeting farm products like soya and corn with 25 per cent tariffs. China has, since then, upped its soya purchases from Brazil.

In 2020-21, during a lull in the trade war, over 70 per cent of US soya exports went to China. That’s fallen to 33 per cent. “The US agricultural sector is going through a significant economic downturn,” says American Soybean Association’s chief economist Scott Gerlt. “A trade war would easily compound the adverse conditions that are placing financial stress on farmers,” Gerlt adds.

Despite the semi-trade war conditions, the US in 2022 exported $17 billion worth of soybeans. By comparison, imports of electronic integrated circuits and micro-assembly parts added up to $9 billion in the same year.

‘Favourite word’

Trump wants simply to rewrite US trade through tariffs. He told Bloomberg chief editor John Micklethwaite in a campaign chat that, “To me, the world’s most beautiful word in the dictionary is tariffs. It’s my favourite word.”

“If I’m going to be president of this country, I’m going to put a 100, 200, 2,000 per cent tariff,” Trump added, throwing in a warning Mexico’s “not going to sell one car in the US.”

Trump insisted if he made tariffs “so high, so horrible, so obnoxious,” factories would return to the US. Economists say that’s a big “if” and would take years to achieve. In the meantime, economic damage would be immense.

China exports a huge variety of goods from machinery and appliances to toys and furniture to the US. Many companies have shifted production to third countries, but the US is seeking to close those tariff loopholes.

Even the Biden administration has moved strongly against China. On Monday, Washington widened its list of Chinese companies subject to export controls on chip-making, software and memory chips.

China called the restrictions “economic coercion” and struck back Tuesday with export bans to the US of vital minerals used in the high-tech sector. What’s certain now is global trade is about to enter a highly unsettled, potentially chaotic, phase. The economic fallout from Trump’s tariff blitz on countries including India could be immense.

Trump has just proposed imposing a 100 per cent tariff on BRICS nations, including India, unless they remove trade barriers he says disadvantage US products. It’s time to brace for impact.