Weaponising tariff to trade – Hindustan Times

United States (US) President-elect Donald Trump has announced that he will impose tariffs on countries beyond China on his first day in office. The list includes the northern and southern neighbours of the US, Canada and Mexico. This is a list that will only become longer during the Trump presidency.

To be sure, the US using tariffs and reneging on its policy of promoting free trade in the world came into vogue during the first Trump presidency itself. And the idea came to enjoy bipartisan appeal with even the Joe Biden administration using tariffs against China. Its appeal has also transcended the Atlantic with European countries — although there are tactical dissenters here — also raising tariffs on Chinese imports such as electrical vehicles.

Trump is only seeking an escalation of this policy in his second term. What makes it even more potent is that Trump intends to use tariffs not just to seek a rebalancing of trade but also achieve objectives beyond trade such as curbing illegal migration and drug trade. Things like illegal migration, while widely condemned, are critical in labour markets such as in American agriculture and a severe crackdown could hurt constituencies that helped Trump’s political resurrection.

How will all this change the world? Uncertainty will be the biggest byproduct. Trump and his advisors have been explicit in stating that tariffs will be the proverbial dog on the leash when the US negotiates with other countries. Its presence itself, even when it is not unleashed, will work to the US’s advantage, they claim. Such an approach from the world’s largest economy will only hasten the demise of an already bedridden multilateral trading order. Also, the Trump administration might end up drawing and redrawing tariffs as companies move borders to skip them. This will worsen policy uncertainty especially vis-a-vis long-term investment decisions.

In the rest of the world, not everyone will be affected equally. Countries that can offer a quid pro quo to the US will manage to do better in this bargain than the ones that cannot. Remember Trump’s Harley Davidson-for-Indian-mangoes pitch? The US’s strategic partners in the Indo-Pacific — this includes India — may hope to bargain better than its historical allies across the Atlantic. Still, these potential upsides aside, everyone including India will have to work with what will be a more transactional and mercantilist White House. Global trade, as we have known it in the last three decades, will not be the same.