The intent of Trump Tariffs

The United States (US) president Donald Trump did just what he had said he would do if elected - he imposed incredibly high tariffs on most countries the US trades with including Bangladesh. Never since the Great Depression of the 1930s was such a disastrous economic measure taken in US history.  His reckless act has thrown world trade, already in a fragile state, into great uncertainty. There is little doubt that the world economy will suffer since a global economic downturn seems very likely. (The US is already in a downturn with negative GDP growth in 2025Q1.)  The situation could worsen if individual countries also take protective or retaliatory measures to shield their own countries from the tariff fallout.

Bangladesh will likely suffer from the deleterious effects of the Trump tariffs. The US is the largest export market of Bangladesh, especially of ready-made garments. Export to the US constitutes about one-sixth of the total exports of goods from Bangladesh. Hence, exports to US could decline substantially. However, this will not be due to losing market share to competitors.

Trump imposed high tariffs also on the exports from most of the competitors of Bangladesh in the US market. Some of the leading competitors of Bangladesh such as China, Vietnam, and Cambodia were hit with high tariffs that were higher than that imposed on Bangladesh. Thus, if the tariffs lead to any inter-country substitution, these will most likely go in favour of Bangladesh.

The massive backlash of the effects of the tariffs, especially on the US stock market, forced Trump to 'pause' the tariffs at 10 per cent for most countries. But the tariffs on Chinese exports were raised to an incredible 145 per cent. There is thus little possibility of Bangladeshi export to the US suffering a decline from any substitution effects.

The real damage, however, will be done by the income effects of the tariffs. If the US tariffs lead to a global economic downturn, it will reduce incomes across most countries. Such a reduction in income will cause significant reduction in imports of not only the US, but most countries of the world. Depending on how severe the global downturn turns out to be, the export sector of Bangladesh will suffer. As 85 per cent of its export sector comprises ready-made garments (RMG) industry, it will take a hit too.

Since the tariff policy was a well-publicised election promise, it is unlikely that Trump will budge from his overall strategy soon. Appealing to him for relief is unlikely to bear fruit. The Commerce and Foreign ministries should abandon the supplicating mode of negotiations and expend their efforts on devising alternative measures to minimise the impact of the expected global downturn.

It is inconceivable that the Trump and his economic team were unaware of the dangers of a full-blown tariff war. The consequences of the tariff war initiated by the Smoot-Hawley Tariff Act of the 1930s on the US economy and world trade are still in memory and often cited in trade discussions. A number of US economists have pointed out that it is not at all certain that Trump tariffs will improve the trade position of the US, nor will these bring back the industries that were shuttered permanently a long time ago mostly because of their loss of competitive strength. Still Trump imposed tariffs that are far more severe than the Smoot-Hawley tariffs (which were 20 per cent on average) and are likely to do significant damage to the US and the world economy. But Trump is not at all worried about such an outcome. On the contrary, he said that a recession is not a very high price to pay for what the tariffs would supposedly accomplish. What then could have been the real objective of Trump's tariff war?

The most serious security issue confronting the US since the Obama years is the rapid erosion of its power and status as the sole superpower or hegemon of the world. The rapid rise of China, and to a lesser extent Russia, has already led to the demise of the unipolar world which has been replaced by a multipolar world. Like many of the reigning hegemons of the past, the US is finding it difficult to adjust to the current reality. It is bent upon restoring the unipolar world with it asthe sole hegemon. This obviously requires the destruction, or at the least substantial retardation, of the economic and military strength of China such that it can no longer be a peer competitor of the US. This intention has been expressed by the recent US presidents on many occasions. Regardless of their party affiliations, all the US presidents of the recent pasthad expressed their resolve to 'contain' China. For this purpose, the main focus of the US security policy has been pivoted to the Asia-Pacific region.

The greatest strength of China is its economy. Even though it is passing through a lean period in recent years, its economic growth rate far outpaces the growth rate of the US economy. Any weakening of the Chinese state could be achieved only by the weakening of its economy. Hence, the Chinese economy is now in the cross hairs of Trump's policy.

Like most other East Asian countries, the rapid economic growth of China largely depends on the rapid growth of its trade sector which amounts to 33.1 per cent of its GDP. But imports account for only about 13.9 per cent of its GDP and the rest 19.2 per cent is earned by exports. A substantial part (12.2 per cent) of these exports are sent to the US.  In comparison US exports account for only 7.2 per cent of its GDP, and exports to China amount to only 6.9 per cent of its total export.  Such numbers might have led the Trump economic team to conclude that a disruption of trade would harm China more than the US.

Subsequent events strongly suggest that the real target of the tariffs was China. Soon after the imposition of the high tariffs on most countries, the US 'paused' the implementation of thesetariffs for 90 days presumably because of the US stock market debacle immediately after the imposition of the tariffs. The tariffs imposed on most countries were reduced to a base level of 10 per cent, but the tariffs on China were raised to a prohibitive 145 per cent. China replied promptly by raising its tariffs on US imports to 125 per cent. It will not be surprising if such high tariffs practically cease trade between the two countries. If so, the US would be successful in effectively imposing comprehensive sanctions on China.

Interestingly Trump took this opportunity to slip in a 10 per cent base tariff on most countries which is considerably higher than the current US average tariff rate of 3.2 per cent. However, the exclusion of China, one of the largest exporters to the US market, will be a welcome opportunity for the rest of the countries to compensate for any loss due to the higher base rate.

It is also possible that the US intends to wreck the 'rule-based order' to regulate world trade which it had itself imposed on the rest of the world after the end of the Second World War. An unforeseen outcome of this order has been the exceptional economic growth of some of the East Asian countries including China. The Trump tariff blitz may be the harbinger of many other policies to wreck the current trade relations and the global economy. Trump might have considered this essential to reorganise the world in a manner that defangs the rising superpowers China and Russia, and restore the US hegemony as existed at the turn of the 21st century.

Bangladesh is in a vulnerable position. Most of the exports of the country is sent to the US and the European Union (EU). Many of these countries are likely to slow down if the tariff adventure of Trump degenerates into a limited or full-fledged trade war. The consequent decline of export of Bangladesh could pull down the economy into a slump. Supplication to the US or the EU in such a situation will not bring forth the desired outcome. Bangladesh will have to look inward to lessen the impact of a global economic slowdown.

The writer is professor of economics, Independent University, Bangladesh (IUB). m_a_taslim@yahoo.com