Elizabeth Morgan | Trump Tariffs – continuing lack of clarity and uncertainty

ON APRIL 2, Liberation Day, President Donald Trump announced his new tariffs on all countries trading with the USA. This was outlined in this column in article titled ‘Confronting Trump Tariffs’ on April 9. Generally, a baseline tariff of 10 per cent was imposed on all countries and there was a list of higher ‘reciprocal’ tariffs on about 57 countries which were supposed to be those taking most advantage of the USA in trade. By this, it was assumed that these countries had a surplus in their trade balance with the USA. This reciprocal list, however, includes countries which have trade deficits with the USA as well as small island developing countries (SIDS) and least developed countries (LDCs) which could not possibly take advantage of the USA in their trade relations.

The base tariff of 10 per cent on all countries took effect on April 5. The reciprocal list took effect on April 9, but later in the day, the president announced that the reciprocal tariffs would be suspended for 90 days, i.e., up to July 9. There are exceptions in implementation for China, Mexico and Canada, and tariffs on motor vehicles, aluminum, steel, and pharmaceuticals.

IMPLEMENTATION

Governments and their private sectors, it would seem, are still trying to come to terms with these new tariffs. It appears that the relevant USA government departments, such as the Office of the US Trade Representative, US Customs and Border Control, and US International Trade Commission, are now applying these new tariffs.

So, for the CARICOM countries, the Caribbean Basin Initiative, which gave duty free access to the US, has been suspended. Guyana is on the reciprocal tariffs list with a tariff of 38 per cent. The assumption is that a base tariff of 10 per cent is being applied to all CARICOM countries, including Guyana until July 9. In the 90-day period, apparently, Guyana would be expected to enter into negotiations with the Trump administration

DEFINING RECIPROCITY

Before moving to negotiations, it is necessary to look at the definition of reciprocity in trade negotiations. It is said that reciprocal tariffs are levied by one country in response to similar tariffs levied by another country with the intent to create a balance in trade. Again, it is recorded that reciprocity refers to mutual concessions or exchanges between countries, such as lowering tariffs or quotas, in return for similar concessions from other trading partners. It is a principle which enables countries to negotiate agreements in which each party grants benefits, like reduced tariffs, to the other, fostering a balance in the trade relationship.

In the World Trade Organization (WTO), and the General Agreement on Tariffs and Trade (GATT) before, reciprocity, as a principle, has been extended to the Most Favoured Nation principle which means that a trade concession made to one GATT/ WTO member is extended to others. It is also linked to the principle of non-discrimination. In the WTO, trade negotiations endeavour to result in a win-win situation for the members.

Reciprocity, as defined by President Donald Trump to meet his objectives of returning manufacturing to the USA and increasing revenue intake to reduce the US debt, is about winners and losers. In his definition, the USA wins and all other trading partners lose. To meet his objectives, the USA, which previously had an average tariff of 2.5 per cent, must be able to maintain very high tariffs as it did in the 19th and early 20th centuries. The US’ current reciprocal tariffs do not meet the customary definition of reciprocity.

BILATERAL NEGOTIATIONS

In this situation, it is not clear what the substance of bilateral trade negotiations with the USA will be, especially for SIDS, and the LDCs which are the world’s poorest countries.

By the Donald Trump reciprocity definition and his stated policy objectives, the US is not likely to be making any trade concessions to these countries in negotiations. The aim is for the US to win and the other party to lose.

For countries which already have reciprocal free trade agreements with the USA, by which most trade between the parties is already at zero and the US has a surplus, what more would they be offering to the USA in trade negotiations? Would they be now removing any still existing tariffs and remaining non-tariff barriers? They would be doing this just to retain the US market access or otherwise, agreeing to move production to the USA. Of course, noting that the USA would be wanting to maintain its high tariffs and to make few concessions, if any. However, all countries have to meet the needs of their people and their economies. Most also have to face electors.

Regarding LDCs, is the USA aiming to have textiles and clothing producers in Lesotho and Bangladesh return this production to the USA? Trump reciprocal tariffs on Bangladesh are 37 per cent and 50 per cent on Lesotho.

Note also that for CARICOM countries, the US tariff on China of 145 per cent, now in effect, could increase the price of imports from the USA, thus increasing the cost of production and the cost of living.

Recall also that there is the matter of sanctions on Chinese shipping and a proposed 25 per cent tariff on imports from countries which import oil from Venezuela. These could also affect CARICOM countries.

So, still, it is not clear what President Trump’s real objectives are with his tariff policies.

UNFAIR TRADE

It is reported that US importers are asking exporters to share the cost of the tariff. This seems to be unfair trading especially for developing countries. It is the US President who decided to impose tariffs, yet the developing country exporter is being asked to share the cost. It is understood, however, that exporters are trying to save their businesses and are examining options.

So, here we are daily trying to understand what is happening in the USA, the on and off again policies, and wondering what more surprises could be announced with more negative impacts on the economy.

Elizabeth Morgan is a specialist in international trade policy and international politics. Send feedback to columns@gleanerjm.com