us President Donald Trump America is showing trading partners no mercy. If they export a lot to the US, it will tariff them back – to half. In many developing countries with Vietnam, India, Thailand and Bangladesh, ‘mutual’ rates are particularly rigid, which are facing obstacles of more than 20%.
The cost will not be felt equally. Tariff The US is not great, but business is still a relatively small part of its economy (less than 25%), and if corporate tax is cut, the cost for American consumers may not be as high as it may not be afraid.
But such high tariffs will be frightening for developing countries that depend on exports. Cutting foreign aid, including eliminating USAID, can be very bad.
Also read: USAID squeeze: Trump’s assistance deduction is a wake-up call for India
There is not a great track record in foreign aid. In addition to its ability to corruption, it can distort economic decisions and actually set back development. If the target is increasing growth and reducing poverty, the export-oriented growth has historically more successful.
Opening to trade encourages economic activity, increases the influx of foreign capital and promotes more investment and permanent growth. For example, the success of the so-called Asian tiger economies was largely due to export-powered development.
If their exports to the US now face high prices, developing countries may face a deep depression, civil disturbance and more serious poverty. This cannot be in the interest of America. Tariffs will not become the center of low-skills for America. And if their aim is to force American companies to move their supply chains from China for national security reasons, why are Sri Lanka, Cambodia and Vietnam – are facing even more tariffs now?
Also read: Reciprocal tariff: Should India respond to Trump’s move?
It is certainly possible that this tariff policy will not be a disaster. Under the Best-Case scenario, countries slapped with high tariffs responded by cutting their own tariffs on imports.
It will be difficult and controversial. It has been argued that the East Asian miracle part occurred as these countries used tariffs and subsidies to give their industries a chance to grow and become internationally competitive. This is one of the reasons that many developing countries today have high tariffs.
In most countries, however, there is a mixed track record of protectionism as a tool for economic growth. This often causes more damage than good, because like assistance, it can promote economic decisions, concrete competition and corruption. In general, freeer trade is a better way to grow.
For example, the Indian economy can become the world’s largest if it has a low trade restriction.
Also read: Get a trade savi: India should intensify its policy stones in the era of American protectionism
But governments do not always function rationally. And even if developing countries have cut their tariffs, they will still face 10% baseline tariff rate of America. The bottom line is that tariffs risk a global trade war with developed markets, which would be economically disastrous and will eradicate the dramatic decline in poverty worldwide that was the great victory of the late neoliberal era that brought late. © Bloomberg
The author is a Bloomberg columnist.