It’s not April Fools day (1 April). But it might as well be as later today US President Donald Trump announces another barrage of tariffs on imports into the US in what Trump calls ‘Liberation Day’ and what America’s voice of big business and finance, the Wall Street journal, has called “the dumbest trade war in history.”
In this round, Trump is raising tariffs on imports from countries that have higher tariff rates on US exports, ie so-called ‘reciprocal tariffs’. These are supposed to counter what he views as unfair taxes, subsidies and regulations by other countries on US exports. In parallel, the White House is looking at a whole host of levies on certain sectors and the tariffs of 25 per cent on all imports from Canada and Mexico which were earlier postponed are being now reapplied.
US officials have repeatedly singled out the EU’s value added tax as an example of an unfair trade practice. Digital services taxes are also under attack from Trump officials who say they discriminate against US companies. By the way, VAT is not an unfair tariff as it does not apply to international trade and is solely a domestic tax – the US is one of the few countries that does not operate a federal VAT; relying instead on varying federal and state sales taxes.
Trump claims that his latest measures are going ‘liberate’ American industry by raising the cost of importing foreign goods for American companies and households and so reduce demand and the huge trade deficit that the US currently runs with the rest of the world. He wants to reduce that deficit and force foreign companies to invest and operate within the US rather than export to it.
Will this work? No, for several reasons. First, there will be retaliation by other trading nations. The EU has said it would counter US steel and aluminium tariffs with its own duties affecting up to $28bn of assorted American goods. China has also put tariffs on $22bn of US agricultural exports, targeting Trump’s rural base with new duties of 10 per cent on soyabeans, pork, beef and seafood. Canada has already applied tariffs to about $21bn of US goods ranging from alcohol to peanut butter and around $21bn on US steel and aluminium products among other items.
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