Will “Tariff-Terror” of Trump work?
Former U.S. President Donald Trump’s aggressive trade policies, often referred to as “Tariff Terror,” aimed to revive American industries through protectionism. Under his America First strategy, he imposed high tariffs on imports, especially from China, arguing that such measures would reduce the U.S. trade deficit and bring jobs back to America. However, history shows that such economic policies often lead to adverse terms of trade, impacting global economies, including poor nations and emerging markets like India.
A historical perspective on trade wars
Trade wars are not new. The Smoot-Hawley Tariff Act of 1930 raised U.S. import duties to protect domestic industries but worsened the Great Depression by triggering retaliatory tariffs. Similarly, Trump’s tariffs on China led to countermeasures, affecting industries worldwide. The World Bank has estimated that global trade growth had already slowed to 1%, its weakest since the 2008 financial crisis.
Impact on India
India, an emerging economy, faced challenges due to Trump’s tariffs on steel and aluminum (25% and 10%, respectively). The U.S. also removed India from the Generalized System of Preferences (GSP) in 2019, impacting exports worth $5.6 billion. This led to adverse terms of trade as Indian manufacturers struggled to compete in the U.S. market. Additionally, Indian IT and pharmaceutical sectors feared disruptions in global supply chains due to increased costs, impacting their future growth in U.S. markets also.
Uncertainty in share markets
A trade tension between the U.S. and China has triggered panic in global share markets. The Dow Jones Industrial Average has seen sharp fluctuations in the recent past. Asian, especially Indian, stock markets have also witnessed volatility, affecting investors’ sentiments and capital flows.
Problems of poor nations
Developing nations relying on exports to the U.S. suffered economic setbacks. Countries like Bangladesh and Vietnam, which supply textiles and electronics, faced reduced demand, leading to job losses. History shows that when major economies impose tariffs, poor nations suffer the most due to their dependency on exports.
Conclusion: Will it work?
While Trump’s tariffs aimed to protect American jobs, they led to adverse terms of trade, inflation, and strained global relations. As seen in past trade wars, such policies may provide short-term gains but often backfire in the long run, harming both the U.S. and the global economies.
