Weapon of Choice in a Trade War? Tariffs
Tariffs have dominated the media in recent weeks, but what do they really mean? What is a trade war, and why is former U.S. President Donald Trump so fond of tariffs?
This all began during the U.S. presidential election when Trump promised to impose tariffs on various countries worldwide. True to his word, shortly after his inauguration, tariffs were implemented against China, Mexico, and Canada, with threats of additional tariffs on the European Union and possibly the United Kingdom.
What Is a Tariff?
A tariff is essentially a tax added to goods imported from one country into another. It is often imposed to limit imports and encourage domestic production. This aligns with Trump’s Make America Great Again agenda, which aimed to promote American businesses by reducing foreign competition. Some of the key markets affected include batteries for electric vehicles (EVs) and electronics.
Why Has Trump Targeted These Countries?
The three countries primarily affected by the tariffs are Mexico (30%), Canada (30%), and China (10%). Here’s why:
China
The U.S. has the world's largest trade deficit, exceeding $1 trillion, with China accounting for a staggering 30–40% of this figure. Trump views reducing the trade deficit as a crucial step in bolstering American industry.
Additionally, concerns over China exporting precursor chemicals used in producing fentanyl and other synthetic opioids have added fuel to the fire. In retaliation, China has introduced its own counter-tariffs and regulatory measures against the U.S.
Mexico and Canada
Both nations have been accused of facilitating the illegal smuggling of drugs into the U.S., including fentanyl and cocaine. The White House has even accused Mexico of actively harbouring cartel leaders.
Furthermore, both Canada and Mexico have faced criticism for allowing illegal immigrants to enter the U.S. under President Biden’s administration. While tariffs on China were implemented immediately, those on Mexico and Canada were given a 30-day delay to allow their governments to address U.S. concerns. If changes are not made, the tariffs may be enforced.
In response, Canada has introduced a 25% counter-tariff, while Mexico has yet to announce specific figures. However, both countries heavily rely on trade with the U.S. and have expressed a willingness to negotiate rather than escalate tensions.
Is a Trade War Inevitable?
A global trade war involving the U.S. and multiple nations seems unlikely, given America’s dominant role in international trade. However, a trade war between the U.S. and China appears more plausible.
Despite an upcoming phone call between U.S. and Chinese officials, tensions remain high. If the situation escalates, it could have severe consequences for the global economy, as both the U.S. and China are among the world's largest importers and exporters.
For now, it remains too early to predict the full impact of these trade policies, but one thing is clear: the global economic landscape is shifting, and businesses worldwide must prepare for potential disruptions