Florence Muchai
47th president-elect Donald J. Trump ran on the MAGA (Make America Great Again) mantra, and his tariff plan could have significant ripple effects on the global economy. Trump, the self-proclaimed “tariff man,” campaigned on the promise of increasing import tariffs by up to 60% on all Chinese imports and maybe 20% on everything else. He has even talked about a 200% tax on some imported cars.
According to analysts, Trump might be able to follow through, including by relying on little-remembered authorities from the 1930 Smoot-Hawley Tariff Act, the last low point of US trade policy.
Most of Trump’s economic advisers support his tariff plans, seeing them as good tools for rebalancing the US economy, which is heavily dependent on imports. On the other hand, economists are concerned about the inflationary effects of drastically higher taxes on US consumers and businesses. The deliberate drag on economic growth caused by rising prices everywhere is another cause for concern.
Other countries are generally confused and unsure whether Trump’s tariff talk is merely bravado to obtain advantageous trade arrangements for the United States or if they will be more narrowly focused or smaller than promised.
Anyhow, large economies like China and the European Union are planning retaliation just in case.
Trump’s tariffs promise and the global economic fight
In the last decade, China’s economy has grown to new heights, taking the global position of exports. Well crafted as they may be, it is unlikely that China will bow to Trump’s tariffs: There is a market somewhere else.
The new wave of US tariffs on Chinese imports would divert more of China’s manufacturing to Southeast Asia, which would initially benefit the subregion. However, if President-elect Donald Trump also targets Chinese goods routed through Thailand or Vietnam, analysts say there could be broader consequences.
Industry sources say that Trump’s tariffs on China will push Chinese manufacturers into parts of Southeast Asia. That way, they can send their products to the lucrative American market without incurring duties.
The reshoring process began during Trump’s first term, from 2017 to 2021 when US tariffs on China rose to as high as 25%.
Vietnam, a manufacturing hub that had previously attracted other Asian investors due to its low labor costs and quickly expanding infrastructure, saw immediate benefits. Chinese direct investment in Vietnam scored first in terms of new project share, accounting for 29.7% of the total in the first seven months of the year.
Thailand, which aims to manufacture 30% electric cars (EVs) by 2030, has invited Chinese investment, including some of the world’s leading EV manufacturers.
As it stands, more companies are investing in Southeast Asia and essentially localizing Chinese capital there. However, Trump is expected to oppose using third countries to circumvent tariffs.
According to business consultancy Dezan Shira & Associates, China’s direct investment in the 10-country Association of Southeast Asian Nations (ASEAN) bloc was approximately US$25.12 billion last year, a 34.7% increase from 2022.
China-based shipping operators are also reportedly planning multiple scenarios to hedge against crackdowns over the next four years.
Would DJT’s tariffs hurt US consumers?
Tariffs are a central part of DJT’s economic vision. He sees them as a way of growing the US economy, protecting jobs, and raising tax revenue. On the campaign trail, he claimed that these taxes are “not going to be a cost to you; it’s a cost to another country.”
Simply put, a tariff is a domestic tax paid on products as they enter the country that is proportional to the value of the import. The evaluated charge is physically paid by the domestic company importing the goods rather than the foreign company exporting them.
In that sense, it is a simple tax paid by domestic US-based companies to the US government.
For example, in 2018, Trump put a 50% tariff on washing machine imports. As a result, the value of washing machines increased by around 12% or $86 per unit, and US customers spent an additional $1.5 billion each year on these appliances.
There is no reason to think that a future Trump administration’s higher import taxes will result in an alternate split of the economic cost.
The nonpartisan Peterson Institute for International Economics estimates that Trump’s latest proposed tariffs would cut Americans’ incomes by 4% for the poorest fifth and 2% for the wealthiest fifth.
“Most of us feel the tariff proposals are detrimental to the economy as a whole, even though they may benefit certain types of manufacturing, at least for a time,” Schlossberg from the Wells Fargo Investment Institute said.
With its heavy reliance on China, Apple remains vulnerable to Donald Trump’s tariffs. Although, Tim Cook likely has a plan to soften the blow. The company has shifted some production elsewhere in Asia, including India, and it hardly makes anything in the US.
With Trump touting a 60% tariff on goods imported from China, Apple is seemingly in trouble. Apple is not the only American company in trouble with Trump. Other companies with shops in China are next in line. What will the American, Asian, and Chinese economies look like under Trump? Well, only time will tell – to the tune of 4 years.
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