Impact of US Tariff Policies and Global Trade Dynamics
The global trading system has been significantly destabilized due to the tariff policies initiated by former American President Donald Trump. These actions have continued under current President Joe Biden, who has further intensified the situation.
US Tariff Policies
- Trump's administration withdrew the US from the Trans-Pacific Partnership, marking the beginning of a more aggressive trade policy.
- President Biden has built upon Trump's tariff measures by expanding to include sanctions, technology restrictions, subsidies, and spending wars.
- India is among the countries affected by these tariffs, as announced by Trump on April 2.
Root Causes and Broader Issues
- The fundamental flaw in the World Trade Organization (WTO) system is the assumption that all economies are similarly structured, which is not the case.
- China’s accession to the WTO was based on the assumption that it would adapt to a market economy, which has not occurred.
- The Chinese economy is characterized by financial repression and economic limitations imposed by the Chinese Communist Party.
China's Influence and Global Economic Imbalances
- China uses hidden subsidies to power, land, and capital, making it difficult for other economies to compete.
- China offers low electricity prices for industrial users compared to other major economies like India and Germany.
- There is no effective recourse within the WTO system to address these issues with China.
- Chinese manufacturing is displacing industries in poorer nations, preventing them from substituting China's role in the global economy.
Consequences and Global Repercussions
- Increased tariffs on Europe, Canada, and India by the US have not directly targeted Chinese overcapacity.
- India's response with quality control orders has inadvertently impacted its own businesses and foreign investors.
- Such measures are seen as poorly conceptualized and may lead to greater economic impoverishment globally.
Conclusion
For effective recovery of the mutual benefits of trade, it is essential to properly diagnose the root cause of the issues, particularly Chinese domestic policies that are distorting global trade dynamics.