Trump Tariffs and Future of Globalization

America's decline in innovation, increasing trade deficit, fractured value chains, and manufacturing dip cannot be delinked from its MNCs whose prime concern is profit

- KJ JOSEPH

DONALD TRUMP IMPOSED reciprocal tariff on April 2, making the World Trade Organization (WTO) redundant. There was consensus on decline in trade and investment setting the stage for a third global recession—after 2007 and the pandemic—with catastrophic consequences for less developed countries, and the US predicted to take the hardest hit. Although the tariff was suspended for 90 days for all but China, uncertainty is at its peak. The unequal, unsustainable world inherited from four decades of globalization has become unpredictable. The moot question is the role of globalization—orchestrated at the instance of WTO—in US concerns and the lessons that the tariff episode offers for the future of globalization.

Trump argued that the lack of reciprocity in bilateral trade ties, disparate tariff rates, and non-tariff barriers had led to the US’ large trade deficit ($1.23 trillion) accounting for about 4.5% of GDP. The most favored nation (MFN) tariff rates under globalization were arrived at after the Uruguay Round (1986-1994). But Trump observed that under the WTO, the US holds the lowest simple average MFN tariff rates of 3.3%, which are much higher for key trading partners like Brazil (11.2%), China (7.5%), European Union (5%), India (17%), and Vietnam (9.4%). These partners also suppress domestic wages and consumption, hampering demand for US exports, while artificially increasing their global competitiveness.