- by Anna Pha
- The Guardian
- Issue #2141
Photo: Walter Rademacher – wikimedia.org (CC BY-SA 3.0)
On 2 April, US president Donald Trump imposed sweeping, so-called “reciprocal tariffs” ranging from 10% to 50% on almost all nations based on the US’s balance of trade with each one. Trump called the hit America’s “declaration of independence.”
In doing so, he has shredded free trade agreements, torn up the rules of the World Trade Organisation (WTO), and more than likely set in train a US if not global recession. Australia, China, and several other nations are talking about taking the US to the WTO. In light of recent US talk of leaving the WTO, that might prove to be a pointless exercise.
The US’s deficit with China in 2022 was US$338 billion. China – described by Trump as one of the “worst offenders” – was hit with a new 34% tariff on top of an existing 20% levy, bringing the total to a hefty 54%.
China responded saying it would in turn apply a 34% tariff on imports from the US. Trump upped the ante, warning China that if it did that, he would add another 50% bringing the total to more than 100%! China said it would “resolutely take countermeasures to safeguard its own rights and interests.”
“The US threat to escalate tariffs on China is a mistake on top of a mistake and once again exposes the blackmailing nature of the US. China will never accept this. If the US insists on its own way, China will fight to the end,” a Chinese Commerce Ministry statement said.
The other highest ten tariffs were: Lesotho (50%), Malaysia (49%), Cambodia (49%), Vietnam (46%), Sri Lanka (44%), Bangladesh (37%), Thailand (36%), Taiwan (32%), and Indonesia (32%). The majority of these nations are from the global South and the Asian region.
The US trade deficit with Lesotho in 2024 was US$234.5 million. It was US$192.6 billion with the EU, US$108.2b with Mexico, and Vietnam US$99.8b. With Australia the USA has a surplus, but still imposed a 10% tariff.
Uncertainty about future trade and fears of recession sent Asian share markets into meltdown.
The US Dow Jones saw US$5.4 trillion (AU$9.0 trillion) wiped off in two trading sessions. European shares were also headed for the biggest weekly loss in three years. Economists are predicting a recession as well as escalating trade wars.
Australia’s stock exchange lost $160 billion in just 10 minutes on 7 April – Black Monday – the largest fall since the global financial crisis and recession that followed. Australian superannuation funds took a massive hit as they invest considerable amounts of workers’ retirement savings in US markets.
Trump said, “I don’t want anything to go down, but sometimes you have to take medicine to fix something,” as investors rushed in to sell off stock. It begs the question: Did Trump and his cronies sell off their shares prior to announcing the tariffs?
“Their economies are not crashing. Their markets are reacting to a dramatic change in the global order in terms of trade,” US Secretary of State Marco Rubio said. “The markets will adjust.” We’ll see if he is living in fantasy land.
NECESSITY
Countries such as Canada and Mexico that have a high reliance on exports to the US will out of necessity need to diversify, find other trading partners.
Australia’s top three export destinations – China, Japan, and South Korea – have been hit with high, ‘reciprocal’ tariffs. Japanese Prime Minister Shigeru Ishiba said the tariffs had created a “national crisis,” as banking shares plunged on Tokyo’s stock market.
China is the USA’s principal target economically and militarily, while Japan and South Korea are close US allies hosting US bases. Yet the three nations have revived an old trilateral dialogue.
The 13th China-Japan-Korea Trilateral Economic and Trade Ministers’ Meeting was held on 30 March. The revival of talks has significant regional and global implications and reflects responses to the US’s economic agenda which is accelerating a global strategic realignment of forces.
As major economies and Asia’s three most significant powers, these nations have recognised a crucial reality: it is time to take an active role in shaping their regional destiny rather than leaving it in the hands of external powers such as the US. The US is driving them into each other’s arms out of necessity.
They agreed to discuss accelerating negotiations on a trilateral free trade agreement that had been sidelined for years, demonstrating a shared interest in stabilising supply chains amid the ongoing global uncertainty. They also pledged to deepen collaboration in digital and green economies and enhance local cooperation.
China is in a relatively strong position to withstand the US onslaught. Only 14.8% of its exports went to the US in 2023. It has diversified export destinations – including Japan, Germany, India, Mexico, and Australia.
That is not to say China’s manufacturing sector will not be affected, which could have ramifications for Australia’s export of iron ore and other commodities.
RESPONSES
Nations hit by US tariffs, including Australia, are lining up in the hope of negotiating a reduction in tariffs.
Australia appears to have dodged tariffs on pharmaceuticals according to a White House fact sheet. The government has stood firm on biosecurity measures, and the ban on the import of fresh meat and fruit not being up for negotiation.
PM Albanese trod softly, refusing to impose retaliatory tariffs while hoping to negotiate a reduction in the 10% tariff. He said, “The administration’s tariffs have no basis in logic and they go against the basis of our two nation’s partnership. This is not the act of a friend.”
Independent Senator Jacqui Lambie called for the closure of Pine Gap. The Greens suggested the cancellation of AUKUS with funds redirected to housing and the cost-of-living crisis.
A number of EU and other countries are planning on retaliatory action if they are unable to negotiate a cut in tariffs.
BACKFIRE
The US already has a high rate of poverty. The inflationary impact of tariffs will only drive more people into destitution. Recession is on the cards with the loss of millions of jobs.
The tariff on auto parts coming into the US will make cars manufactured there more expensive. That includes Elon Musk’s Teslas. That in turn will make US exports less competitive – another own goal.
The tariffs will accelerate the process of an economic and strategic realignment of nations that is underway as they seek to avoid the hefty tariffs. Australia, for example, is looking to re-commence negotiations around the free trade agreement with the European Union.
White House aide Peter Navarro optimistically expects US tariffs to bring in US$6 trillion in revenue in the next decade, and Trump is talking about being able to reduce taxation.
These rosy assumptions ignore the likelihood that nations will reduce exports to the US, or US consumers will spend less due to inflation.
As the US puts up fortress walls with the aim of hanging on to a unipolar world with itself as the global dictator, it is ironically accelerating the development of a multi-polar world as nations look for new trading partners and agreements.
The Global South is on the rise. BRICS (Brazil, Russia, India, China, South Africa, plus new members) is the driving force behind the emerging multi-polar world. China, in particular, with its Belt and Road Initiative has poured billions of dollars of investments including infrastructure into developing countries.
The multi-polar world horse has bolted.
