Trump serving own agenda at the expense of global interests

June 04, 2019 18:05
US President Donald Trump's reckless tariff policy has thrown the multilateral trade order into disarray. Photo: Reuters

While his trade war with China is in full swing, US President Donald Trump dropped a bombshell on Twitter last Thursday, announcing that he is imposing a 5 percent tariff on all goods coming from Mexico starting from June 10, and this will gradually increase to 25 percent if Mexico fails to comply with his demands.

Trump’s announcement has caught Mexico, along with global stock markets, completely off guard.

On the surface, Trump is going after Mexico because, according to him, its government has failed to stem the rising tide of illegal immigrants from across Latin America who are entering the United States through Mexico.

Trump’s move, however, could be part of his preparations for the 2020 presidential campaign, an apparent attempt to play to his support base and avoid criticism that he has failed to deliver on his pledge to fight illegal immigrants crossing the US-Mexico border.

But while it remains to be seen whether his latest gambit is going to work this time, his relentless imposition of tariffs on major trading partners is already taking a heavy toll not only on the US economy in the short and medium term, but also on the global trade system and supply chain in the long run.

As Nobel Prize for Economics winner Paul Krugman has recently tweeted, the average American consumers are going to be on the receiving end of this latest tariff move, since consumer goods, especially food items, currently account for the majority of US imports from Mexico.

Krugman also pointed out that Mexico is a “key part” of the supply chain of various manufacturing industries, particularly autos, in North America. As such, the new tariffs could result in soaring operating costs for local factories across Mexico and force many of them either to downsize their production lines or simply shut down.

If that happens, it would not only cost Mexican workers their jobs but also threaten American factories and workers, and this could give rise to stagflation in the US.

Trump’s reckless tariff policy has also thrown the multilateral trade order into disarray.

Many US companies and multinational corporations have shifted their production lines from China to places such as Mexico to avoid risks from the ongoing Sino-US trade tensions, and now they are caught in limbo as a result of Trump’s latest tariff move.

And as Trump’s impulsive trade policy has toppled the global trade status quo, which was originally relatively stable, trust among governments around the world has been substantially undermined.

The multilateral trade system is now hanging by a thread.

As a result, more and more countries will follow suit and use tariffs as a means to protect the interests of their domestic enterprises in the coming days.

This article appeared in the Hong Kong Economic Journal on June 1

Translation by Alan Lee

[Chinese version 中文版]

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Hong Kong Economic Journal