Editorial | Trump renews trade war despite risks at home and globally
China, along with much of the world, is better prepared for US president’s latest tariffs that are likely to stoke American inflation
As promised, US President Donald Trump has renewed his trade war, firing an opening salvo of punitive tariffs at Canada, Mexico and China. His unfortunate decision, just two weeks into his new term, is a risky gambit likely to spur inflation in America and curb global economic growth. It also is probably just the beginning.
Trump has said the tariffs are needed to curb illegal immigration and trafficking in fentanyl, which kills thousands of Americans every year. Mention of the narcotic is perhaps designed to convince those at home the trade war is for a good cause and to distract from the likely wave of inflation to come. Canada and Mexico have announced retaliatory tariffs. China plans to file a claim with the World Trade Organization. Hong Kong is bracing for resurgent US inflation to prolong the high interest rate environment and pressure businesses.
Trump’s stated broader goal is to restore US manufacturing might, and forcing foreign firms to set up in the United States would help do so. His ultimate target is rival China, the biggest US competitor and the world’s largest manufacturer. It will be easier said than done.
This may explain why Trump started with close neighbours and trade partners Canada and Mexico, which got whopping levies of 25 per cent, while China saw a relatively marginal 10 per cent. The aim is get the two allies on board, then force others to toe the US line on trade. Trump has warned tariffs against the European Union will “definitely happen”. Japan and South Korea are likely targets among US allies in Asia. With allies in line, and a large and attractive market, the US would be better positioned to challenge China.
Still, it is unclear how effective Trump’s bid will be. World leaders have spent years signing trade pacts and cutting tariffs and non-tariff barriers and are well aware of the costly damage of trade conflicts.
China is in a stronger position and better prepared than it was during Trump’s first trade war in 2018, having entered into free-trade agreements around the world, built up trade relations with partners in the Global South, and bolstered its technological self-reliance. Its share of global manufacturing output has increased as well, from around 28 per cent in 2018 to nearly 32 per cent last year – double that of America, which it overtook in 2010. While Beijing may soften the blow by letting the yuan depreciate, Hong Kong has no such option due to the US dollar peg. The US should bear in mind it ran a trade surplus of US$271.5 billion with the city in the past decade.
