The trade policy of America has evolved over one century post the First World War. As soon as the Second World War started, the USA saw an opportunity in that war that was going on in Europe and elsewhere in the world. The US was convinced that Europe would undergo the hammer of the war, and post-war, a lot of reconstruction and other business opportunities were openly available. The fall of Japan in the war made the USA the only big economy in the world to take care of the needs of Europe and the rest of the world!
The US invested in capacity building across all the sectors, which eventually helped to earn huge money during wartime. Because of the wartime crisis, the US accepted gold for transactions, which led to a huge accumulation of gold in the US. Following World War II, the United States provided the Marshall Plan (European Recovery Plan) to Western Europe to rebuild Europe, championing free trade by reducing interstate trade barriers and globalisation, helping establish the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organisation (WTO). This system aimed to gradually reduce global trade barriers.
The machine of globalisation established the USA as a super economic power for the world while making the US dollar as default reserve currency for the world. However, the machine of globalisation, which looked very lucrative for the USA in the first half of the 20th century, began to affect its economy adversely on some accounts; particularly trade balance and the huge pressure to keep the US dollar stable in all circumstances. Particularly, since the 2010s (mainly during the Trump administration (2017-2021)), the US position shifted toward more aggressive trade tactics, which included increased use of reciprocal tariffs. This trend has gained more momentum in the present-day Trump administration, albeit with different emphases and targets.
The US is experiencing a huge trade imbalance with its trading partners. The US exports were subjected to higher tariffs, which were many times higher than the tariffs on the US imports. It resulted in its domestic goods market being completely dominated by low-cost economies like China, Vietnam, India and Bangladesh. With all these countries, today, the US has huge trade deficits. Not only this, but taking the benefit of its trade policy, China has become a manufacturing hub for the globe and has bought more than $800 billion in US treasury bonds, which might be a risky proposition for the US. Also, its liberal trade policy was hurting its strategic domestic manufacturing sectors like steel, aluminium, semiconductor, critical minerals and materials, as well as advanced technologies.
The reciprocal tariffs by the USA are a significant departure from international trade policies. The supporters are arguing that these are necessary measures for protecting the interests of the US and bringing in fair competition in the market. However, at the same time, critics are cautioning about the potential economic costs and consequent long-term diplomatic repercussions for the US. The consumers in the US might be forced to pay higher prices caused by both the higher tariffs and global supply chain disruptions. Not only this, but it will lead to reallocations of resources, leading to chaos in the short term, also.
There are many who call these measures as temporary tactics to gain negotiation and bargaining power. So even if these are temporary measures, these are going to reset the economic relationships across the globe which in the medium to long term will evolve into a new world order. This clearly indicates that the USA as well as the whole world is evaluating America's role in the global economy.
New trade policies would certainly follow this change, which would lead to recalibration and refinement of the global multilateral institutions such as the IMF, World Bank and WTO. Outside the world of economics, institutions like the WHO and securities relationships would also witness significant transformations. This may result in more bilateral and regional trade relationships, reducing the role of global institutions and eventually the rise of regional trade blocs like BRICS.
Whether these tariffs are a temporary negotiating tactic or a fundamental shift in American trade policy, reciprocal tariffs are already reshaping global commerce. These will continue to influence international economic relations for years to come and affect the domestic economic policies of other economies. Emerging markets like India would be hit hardest. These economies would have to prepare themselves for higher tariffs becoming the new normal for her inward as well as outward trade or lower tariffs on export and imports both.
The US is experiencing a huge trade imbalance with its trading partners. The US exports were subjected to higher tariffs, which were many times higher than the tariffs on the US imports. It resulted in its domestic goods market being completely dominated by low-cost economies like China, Vietnam, India and Bangladesh. With all these countries, today, the US has huge trade deficits. Not only this, but taking the benefit of its trade policy, China has become a manufacturing hub for the globe and has bought more than $800 billion in US treasury bonds, which might be a risky proposition for the US. Also, its liberal trade policy was hurting its strategic domestic manufacturing sectors like steel, aluminium, semiconductor, critical minerals and materials, as well as advanced technologies.
The reciprocal tariffs by the USA are a significant departure from international trade policies. The supporters are arguing that these are necessary measures for protecting the interests of the US and bringing in fair competition in the market. However, at the same time, critics are cautioning about the potential economic costs and consequent long-term diplomatic repercussions for the US. The consumers in the US might be forced to pay higher prices caused by both the higher tariffs and global supply chain disruptions. Not only this, but it will lead to reallocations of resources, leading to chaos in the short term, also.
There are many who call these measures as temporary tactics to gain negotiation and bargaining power. So even if these are temporary measures, these are going to reset the economic relationships across the globe which in the medium to long term will evolve into a new world order. This clearly indicates that the USA as well as the whole world is evaluating America's role in the global economy.
New trade policies would certainly follow this change, which would lead to recalibration and refinement of the global multilateral institutions such as the IMF, World Bank and WTO. Outside the world of economics, institutions like the WHO and securities relationships would also witness significant transformations. This may result in more bilateral and regional trade relationships, reducing the role of global institutions and eventually the rise of regional trade blocs like BRICS.
Whether these tariffs are a temporary negotiating tactic or a fundamental shift in American trade policy, reciprocal tariffs are already reshaping global commerce. These will continue to influence international economic relations for years to come and affect the domestic economic policies of other economies. Emerging markets like India would be hit hardest. These economies would have to prepare themselves for higher tariffs becoming the new normal for her inward as well as outward trade or lower tariffs on export and imports both.
Dr Rajeev K Upadhyay
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