The End of an Era
Trump Tariffs and the Fall of Free Trade By Agha Zuhaib Khan, The era of free and broad international trade built on a system of rules created by America United States helped create, is coming to an abrupt halt. On April 2 in an extravagant White House event, U.S. President Donald Trump rolled out a range of huge tariffs that will impact almost all foreign countries. In a way, the announcement was not a shock since the day that he was inaugurated, companies and financial analysts were aware that Trump was going to raise trade barriers. However, the scope and magnitude of the tariffs confirmed their biggest concerns. In one swift move, Washington has severely restricted the international trade.
In defending the new tariff regime, Trump has stated his argument that it is the United States is the victim of unfair trade practices. Similar to the majority of Trump’s theories there’s more than just a speck in truth in his assertions. China, for instance, has profited from World Trade Organization rules to gain access to foreign markets for its exports, while restricting access to its markets. Beijing has also utilized massive subsidies as well as other methods to increase global competitiveness of Chinese businesses, such as demanding foreign firms transfer technology.
Aggressive Approach and Global Impact
Instead of resolving the rules that a few U.S. trading partners took advantage of, Trump has chosen to take over the whole system. He has used the opportunity to trade with almost each significant U.S. trading partner, leaving out neither rivals nor allies. China currently faces significant tariffs, sure but the same is true for Japan, South Korea, and Taiwan. The long-running, mutually beneficial relations in the field of economics and geopolitical are counted for only a tiny amount. Trump Tariffs and the Fall of Free Trade By Agha Zuhaib Khan
Many believe that Trump’s tariffs are ineffective. If the country is faced with declining stocks and price increases, Washington will roll the restrictions back. It’s possible that the White House will lower some of its tariffs, particularly in the event that countries lobby for exemptions. However, the reality is that the era of free trade is not likely to return. Instead, any negotiations with Trump as well as other countries will result in an economic system that is characterized by tensions, protectionism and trade. This will not result in the creation of more jobs as Trump has promised. It will be chaos for everyone, and for the next few years.
Misunderstanding Trade Deficits
According to Trump that Trump believes that the United States needs massive tariffs in order to correct their trade inequities. There is no logic behind this assertion. The United States runs trade deficits with many countries, however there is no problem with that. It just means that other countries are more efficient in creating goods that U.S. consumers want, therefore Americans are more likely to purchase from them instead of the other way around. But Trump thinks that any country with trade surplus bilaterally against United States is cheating. United States is, by definition, cheating and reciprocal tariffs are required to ensure that things are even.
To determine the tariffs he would apply, Trump ostensibly calculated all the methods in how countries cheat, including through tariffs, nontariff barriers and manipulation of currency–to calculate what “tariff” each country imposed on the United States. In reality, this was splitting each U.S. trade deficit with one country by the value of goods that it exports to the United States. (These calculations do not include trade in services, such as tourism, education, and business services –in that it is the case that United States runs a surplus with the majority countries it trades with). Trump was generous in giving each country the discount of 50 percent and imposed reciprocal tariffs on imports of goods equal to half of that amount. Trump Tariffs and the Fall of Free Trade By Agha Zuhaib Khan,
Case Studies: China and South Korea
To get a better understanding of how this works, in practice, look at China. In 2024 China was the largest importer of goods from United States had a $295.4 billion trade deficit with China and also imports $438.9 billion in Chinese products. Trump has estimated that China has a tax rate of 67 percent for imports from America – that’s $295.4 billion divided into $438.9 billion. Trump has therefore set reciprocal tariffs for U.S. imports from China at 34 percent (half of the 67 percent). The figure is over the tariffs of 20 percent already in place, resulting in the total tariff of 54 percent for imports from China However, who is really counting?
It is true that the United States and South Korea have an agreement on free trade and a free trade agreement, however South Korea does run a trade surplus with the United States. So, according to Trump’s reasoning it’s likely they’re doing something illegal. According to White House estimates, South Korea applies roughly 50 percent tariffs to U.S. exports. In the end, Trump put 26 percent tariffs to imports of South Korea.
What happens to countries that are countries that the United States runs a trade surplus with? What about countries that have a surplus in trade with the United States? United States exports more goods to Australia and the United Kingdom than it imports from these countries. It is evident that it is the United States to be the cheater in these two relations. However, in Trump’s perspective there are no other countries who cheat. In reality, the two countries still incurred 10% tariffs. You might wonder, why would you apply tariffs in these situations? The answer, according to the research is, why not?
They do not eliminate the total U.S. trade deficit–unless the country is completely shut away from trade with other countries. This is because it is in essence the gap between domestic saving and investments. In the end, it’s clear that the United States remains a good place to invest, however its savings rate for private investors is not high, and the government is running massive deficits in its budget. If Trump truly desired to get the global trade balance into balance, he’d be better off taking steps to boost savings in the nation. Even in the event that it were true that the United States were to have zero overall trade deficits however, it will likely have trade deficits with certain countries, and have surpluses with other. Trade imbalances between countries are the result of international commerce.
Trump sees tariffs as the tool for revitalizing U.S. manufacturing. But this benefit is only speculation and is likely to occur in the near future and will be weighed by the obvious cost. Trump’s tariffs cover an array of goods as well as trading partners they’ll undoubtedly impact negatively on our U.S. economy–with the costs of disruption being borne by American business and consumers in virtually every sector. Trump Tariffs and the Fall of Free Trade By Agha Zuhaib Khan,
Impact on Industries and Supply Chains
Industries that have supply chains that span many countries, like auto manufacturing, are likely to suffer the worst effects. Any business which has gained from supply chains that are cost-effective and efficient (which means, the majority of them) must cut back in order to lessen its risk of exposure to trade policy as well as geopolitical risk. This will invariably increase costs for consumers as businesses prefer resilience over efficiency. The agricultural products, equipment and machinery and high-tech products that the United States exports will be in a negative way due to the retaliatory tariffs that Washington has imposed on its trading partners.
The world is still reacting to President Trump’s announcement. But, the world is likely to react with a mix of anger, appeasement and diversification. Each of these strategies is not without its issues.
Think about first to take retaliation at in the first place by retaliating against United States. Numerous countries have promised that they will impose tariffs on American products in reaction to Trump’s threats. Their citizens too are furious. Canadian consumers are avoiding U.S. products, and observers expect tourists from all over the world to turn away from traveling to the United States. But retaliation has the costs of its own as it creates uncertainty regarding global trade which can affect investment in businesses.
Appeasement carries fewer risks, and every nation facing U.S. tariffs has a strong interest in reaching a deal with Trump. Countries cannot balance bilateral trade in a single day, but they can promise to buy more goods from their U.S. counterparts and lower import barriers.. Trump justified previous rounds of tariffs based on larger national security reasons by using them to pressure countries to reduce illegal immigration and the flow of illicit drugs. U.S. trading partners could suggest taking bold steps to stop these diseases from getting to American shores.
Trump likes a bargain in the end, and so every country must come up with ways for him to declare victory (which is what he’ll do in any event). However, even if other countries are willing to purchase greater U.S. goods, it is highly unlikely the trade balances with United States will shrink rapidly enough to satisfy the president, and leave the door open for further punishments. If trade tariffs slow down the American economy, Trump is to heap further blame on the world.
Other countries, especially those with existing significant trade relations, may possibly avoid their relationship with the United States altogether. For example, China, Japan, and South Korea might try to collectively shield themselves from negative effects from U.S. tariffs by intensifying their trade ties. However, each of these nations fuels its economy through exports and struggles with low domestic demand.. China’s huge overcapacity and weak demand for imports in particular, pose a threat to the economies of the other two. In the end, these two countries will be cautious about open their markets to the exports of each other. It is the Europeans, for their part have indicated that they’re willing to cooperate with other countries in trade. However, they don’t intend to become adumping site for other nations’ exports. Trump Tariffs and the Fall of Free Trade By Agha Zuhaib Khan.
But, with limited accessibility for U.S. markets and weaker U.S. consumer demand, the majority of nations will turn to export diversification of markets, trade agreements which do not include the United States, and other strategies to protect themselves from the threat of a world trade conflict. However, they are only able to do the extent of what they can. Even when you believe that the United States retreats from the massive, broad-based tariffs Trump has outlined it is still causing damage done to investor and business confidence. Washington has thrown a shade on the investment of businesses and consumer expectations, and could push the slowing U.S. economy into a recession, and drag the entire world economy along to the bottom.
The United States has ceded its position as a defender of trade liberalization and has instead triggered a return of protectionism that is threatening both businesses and consumers around the world. If these tariffs remain in the current form, will be a marker of Trump’s legacy and not as a smart businessman, but as a savage and insolent obstacle to economic growth.