American tariffs: a Pyrrhic victory looms

Trump has recently vowed to impose up to USD$300bn worth of tariffs on Chinese imports. It is a self-destructive weaponisation of tariffs in an economic war which can only result in a Pyrrhic victory.

It doesn’t take a scientist to see the irreconcilable conflict between China and the USA. America wants to hold on to the global economic power that they have possessed for decades; China wants to take it for themselves. Neither is necessarily in the right nor the wrong, but their continued indifference towards cooperation will result in an economic bloodbath which hits individual households the hardest. 

Trump’s decisions to tariff Chinese goods will inevitably raise the costs of production within America, leading to increases in the overall price level. There would be nothing inherently wrong in this course of action should wages grow accordingly, however history has proved this to be something which takes time to manifest. During this lag period, households will have to bear the burden of raised costs and stagnant wages. In other words, individuals can expect to be paying the Trump Tax on their consumables for the next year at least. 

On top of this, Trump is in blissful denial – or perhaps intentionally spouting falsehoods – with respect to the economic incidence of his actions. He proudly tweeted that the result of his decision will be “no inflation. No help from the Fed!” If nothing else, one can admire Trump’s perseverance. His continued disdain for the Federal Reserve has become almost pathological. Alienating the central economic power in a country where presidential poll ratings depend so heavily on economic performance is self-destructive at best and at risk of destabilising the nation’s economy at worst. 

Moreover, Trump’s actions will have far-reaching consequences for dozens of countries who count on China as a primary importer of their goods and services. Tariffs will depress demand for Chinese productions, which in turn will result in fewer imports from trade partners. America cannot continue to expect their own trade partners to cooperate with them when these same countries experience the damage of Trump’s increasingly frequent outbursts so acutely. 

And herein lies the ultimate damage of Trump’s actions. China and America’s inextricable supply chain and trade links make any damage to one equally as harmful to the other. With their mutually-assured downturn all but set in stone with the continued introduction of tariffs, export-based countries may no longer have a growing economic superpower to feed. The Economist’s commentaries on Slowbalisation seem more prevalent than ever. China and USA’s incessant squabbling is creating a total loss of faith in the global partnerships which have characterised economic growth for the last few decades. As countries turn to inward-oriented solutions, economic health can reasonably be expected to stagnate. 

Perhaps America will eventually ‘win’ this battle they have picked. Perhaps China will. But whoever is left standing in may lift their head to see that the crowd has already left. 

Donald Trump’s recent decision to raise tariffs on Chinese goods is creating more harm than any potential victory could offset. For a President who prides himself on America’s prospering economy, that is not a wise choice. 

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