Trump's global trade war

On February 1, President Donald Trump issued an executive order imposing sweeping tariffs on almost all imported products from Canada, Mexico, and China. However, Tariffs on China became effective on February 4, 2025, while Canada and Mexico reached agreements with the U.S. to delay tariffs until March 4, 2025. But China responded with a series of duties on $14 billion worth of US goods in response to 10 per cent tariff on imports from China.

Now that the immediate threat of US tariffs has been lifted, Canadians' disbelief and fury has been tempered by relief and uncertainty about what might come next. Some economists forecast that, if reimposed, US tariffs would drive the Canadian economy into recession within five to six months causing significant job losses. This is equally true for Mexico. Both the countries rely on the US for almost three quarters of their exports.

Trump has used and promised to expand tariffs to raise revenue, bring trade into balance, and assert control over rival countries.  Trump has also signalled that this tariff imposition on Canada, Mexico and China is only the first step in a broader effort to reshape the global economy and geopolitics in favour of the US.

Furthermore, tariff measures against the EU and other countries will be announced in the very near future. Trump on February 10, signed an executive order imposing tariffs on all steel and aluminium coming into the US. Trump declared, "This is big deal - making America rich again".

In addition to looming US tariffs, the EU is also deeply concerned that the flow on effects of Trump's tariff on China is likely to result in excluded goods from the US market likely to be diverted to the EU market. Germany, the world's third largest economy is in deep crisis. Germany's central bank Bundesbank already slashed its forecast for growth for 2025 from 1 per cent to zero and warned that a US tariff war could push the country into recession.

While the EU have drawn up plans to respond to US tariff hikes, there are divisions within the bloc. In a statement the European Union has emphasised the need for a unified response./

Media has given a very widespread coverage on the effects of President Trump's tariffs on trade balances, global supply chains and the inflationary effects of tariff hikes. It is also feared that it can potentially set off a financial crisis in view of fragile global financial markets now bloated by record levels of debt and speculations. It can further impact policies of central banks.

Trump posted on social media that the tariffs were necessary "to protect Americans". He also falsely claimed that tariffs are paid for by foreign countries, therefore will be painless for American working people. In fact, it is American importers who pay tariffs, and the money goes to the US Treasury.

Tariffs are typically charged as a percentage of the imported product to be paid by the importer. For example, faced with tariffs equal to 25 per cent of the value of commodities they import, US importing companies will pass on this additional cost on to consumers in the form of price hikes. US consumers will end up footing bill for tariffs. Therefore, the tariffs could cause inflation to significantly worsen in the US.

Tariffs are effectively a tax on consumption. Tariffs can drive inflation by raising the cost of imports, limiting the availability of affordable options and weaken domestic competition enabling domestic producers of similar products to raise their own prices. He will place tariffs on many goods that the US does not even produce.

Mainstream economists are generally sceptical of tariffs, considering them a mostly inefficient way for government to raise revenue and promote prosperity. Tariffs raise costs for companies and consumers that rely on imports. They are also likely to provoke retaliation as the EU and China did. Yet Trump said "Tariffs are the greatest thing ever invented" at a rally in Flint, Michigan, during his presidential election campaign. He even called himself "Tariff Man".

Trump seems to believe that the US market is incredibly sought after by all other countries in the world, therefore he can extort concessions from other countries to have access to the US market. This is a deeply flawed understanding of how the global economy operates. His tariffs can cause temporary problems for other countries, but they will reorient their production and trade relations leaving the US out of the picture.

From an economic standpoint, Trump's global trade war and avowed America First protectionist policy goals are simply irrational. The US remains the most powerful economy and the centre of the global financial system. However, resurrecting aggressive, self-serving protectionist measures risks fostering the same conditions that contributed to the outbreak of World War II. Trump's tariffs would reduce the volume of trade and cause depreciation in the currencies of tariff affected exporting countries to offset the increased price of the exported goods denominated in US dollar. Therefore, strengthening of the US dollar's value in the process will make US exports more expensive and attract US customers to imports-primary causes of U.S. trade deficits.

The appreciating US dollar poses a serious threat to developing countries like Bangladesh. Many developing countries borrowed heavily in US dollars, now it will make debt servicing and repaying their debt more expensive.

Bangladesh already enjoys favourable trade balance and achieved a trade surplus of US$6.15 billion last year. As Bangladesh products already encounter an average tariff rate of about 16 per cent in the US market, the country is unlikely to be impacted by the Trump trade agenda. It now appears that the interim government is trying to delay the graduation of Bangladesh from the least developed country (LDC) to a lower middle income developing country (DC) beyond 2026, as the country needs to try to have duty free access for its goods with the objective to reinstate GSP.

Furthermore, a foreign policy based on exceptionalism as embodied in the "America First" policy undermines the UN charter and the post-war global order built on sovereign equality. Trump's "America First" policy as a "critical component of to national security" as outlined in a memorandum following the assumption of his office on January 20 signalled not only his prioritisation of the US economy but complete disregard for international legal obligations under the UN charter. In the main, Trump's tariff offensive is linked to geo-strategic objectives rather than strictly economic ones.

In fact, Trump's economic objectives are internally contradictory. While Trump grumbles about an over-valued dollar which makes the US less competitive in the international market, his imposition of tariffs will further strengthen the dollar thus worsening the US' competitive position. About $7.5 trillion traded in global currency markets each day saw sharp movements in the value of the US dollar following Trump's threat to impose a 25 per cent tariff on Canada and Mexico and then agreeing to delay it by a month.

High and broad-based tariffs will reduce exports along with imports, and this will leave the balance of trade mostly unchanged. Exports fall when tariffs are introduced because many US companies use imported intermediate inputs to manufacture final goods in the US thus making them more expensive in international markets. It is estimated that tariffs will increase the costs for steel users by $ 5.6 billion. US trading partners are highly likely to retaliate making US exports more expensive.

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