Commentary: Trump’s Wishful Thinking on the Tariff War

[para. 1] In a significant global economic development, U.S. President Trump has unveiled details of his much-anticipated “reciprocal tariffs” policy amidst considerable market unrest. This initiative involves the imposition of tariffs on all trading partners, with levels significantly exceeding what investors had anticipated, thereby exacerbating global market turbulence.

[para. 2] Under Trump's plan, China faces a 34% additional tariff, while tariffs ranging from 20% to 49% target other major partners like the European Union, Vietnam, Japan, and others. A minimum reciprocal tariff rate of 10% is set for all trading partners, with European and Asian countries subjected to higher rates than African nations.

[para. 3] During the “Make America Wealthy Again” event, Trump dubbed this initiative "Liberation Day" for America, claiming it heralds U.S. economic independence. He asserted that these tariffs would enable the rebuilding of American manufacturing without burdening U.S. consumers, as the tariff revenues would reportedly be used to reduce taxes and national debt.

[para. 4] However, these claims lack theoretical and practical support. Historically, tariff wars have been detrimental, causing harm to both the initiator and its partners.

[para. 5] As the largest global economy and consumer market, the U.S. influences world trade significantly, given the dollar's status as the reserve currency. Nonetheless, Trump's optimistic claims about “reciprocal tariffs” restoring American wealth appear unfounded.

[para. 6] The policy aims to safeguard domestic industries and promote manufacturing reshoring, reflecting a mercantilist mindset that contradicts modern industrial growth laws. Though higher tariffs can bolster the dollar, they simultaneously hinder foreign investment and export competitiveness. Moreover, they may inflate prices for imports, increasing costs for American consumers and heightening inflation.

[para. 7] Some investment banks and research institutions, such as Goldman Sachs, predict tariff levels could peak similarly to those in the 1930s. Such aggressive tariff policies are expected to raise inflation, unemployment, and recession risks, fundamentally altering both American and global economies by increasing costs and stunting growth.

[para. 8] This approach portrays a continuance and escalation in the Trump administration’s unilateral and protectionist strategies, likely encountering substantial opposition and countermeasures from global partners like China.

[para. 9] Historically, Trump has frequently modified and sometimes reversed tariffs on select imports from countries like Canada and Mexico. Such tactics weaponize tariffs as negotiation tools, challenging international trade norms and unsettling supply chains. Protectionism and unilateralism, inherently harmful, prompt affected nations to seek economic and trade cooperation, thereby reinforcing the multilateral trading system.

[para. 10] The newly announced tariffs echo the notorious Smoot-Hawley Tariff Act of 1930 that also sought protectionism. This legislation elevated tariffs on over 20,000 goods and prompted a wave of retaliation from other countries, leading to a dramatic trade decline and contributing to the Great Depression.

[para. 11] With the midterm elections looming next year, the Trump administration faces a narrowing policy implementation window. Under America’s federal system, Trump’s maneuverability and the Democratic response remain uncertain. Yet, it is clear that inconsistent policies, marked by chaos and uncertainty, are likely to collapse, harming both others and America itself. In response, China should focus on its internal development while collaborating with other nations endorsing multilateralism to overcome challenges and embrace future globalization.

[para. 12] The article is authored by Zhang Lantai of Caixin Media.

[para. 13] Contact editor: Lu Zhenhua (zhenhualu@caixin.com).