US President Donald Trump’s announcement on Wednesday that his country would impose tariffs on virtually all others was widely expected, and yet it was still shocking. Even some uninhabited island territories were not spared, incurring 10 per cent levies on their presumably hypothetical exports. Other tariffs – 54 per cent for China and 30 per cent for South Africa, to name two – will have far more serious consequences for global trade and development.
For numerous world leaders, many Americans and the global markets, Mr Trump’s underlying policy goal remains unclear. He has given contradictory signals – on the one hand, saying the tariffs will make America self-sufficient, and on the other, saying they are a “reciprocal” measure. The former implies permanent protectionism, the latter suggests a strategy to coerce the whole world to address tariffs together. Another reading, based on a different set of past remarks, is that Mr Trump doesn’t mind either scenario, as long as the US achieves a surplus in all its trade relationships.
In the absence of a definitive explanation, for now, the world beyond America’s shores remains in the dark about what it’s in for. In the West, historically the bastion of free trade, a fierce trade war looms between Washington and Europe.
But the spirit of free trade retains some resilience across the world, in no small part because of the enthusiasm with which it has been embraced in the East in recent years. While many used tariffs to get a foothold on the development ladder early on, Asian countries know they have gained more from open markets than they have lost, and they can continue to do so even without American leadership.
When Mr Trump pulled America out of the Trans-Pacific Partnership early in his first term, proponents of the free trade pact between East Asian and North and South American countries feared that would spell its demise. Instead, the TTP morphed into the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), saddled with a clunkier name but more streamlined in the absence of American demands.
In the Middle East, too, many governments have sought to steer themselves in the direction of openness. The UAE has signed a flurry of Comprehensive Economic Partnership Agreements (Cepas) with countries from India to Chile. Several others in the region – including Bahrain, Jordan and Oman – have free trade agreements with America.
Yet the impact of the new tariffs will certainly be felt in this region, particularly among countries still working to build out their manufacturing sectors. Jordan, despite being the first Arab state to sign a free trade deal with the US, has been hit with a 20 per cent levy. Iraq, a long-time US ally with a fragile non-oil economy, faces a tariff of 39 per cent. The economically stronger GCC states are set to face a 10 per cent tariff – Mr Trump’s minimum amount.
Whatever the justification or the end game, there is no doubt Wednesday’s announcement from Washington has set a new, and difficult, cadence for the global economy. But to the extent that it can, the East will likely continue its march towards a freer, rules-based market. It is the way to prosperity. In time, perhaps, free trade’s doubters will rejoin the ranks.
