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With the increase of cross-border tariffs, global trade is at a greater risk than before. A senior United Nations official predicted that American tariffs might add fuel into the fire and shrink trade volumes by 3% and also shift the classical export centers which includes China and America into emerging economies.
Without hesitation, President Trump of the US declared a new policy of tariffs on a set of imports last week. Although existing nations have been exempt from "reciprocating tariffs" for the time being, China is excluded. Striking back, the Chinese government has placed retaliatory duties of 125% on US imports, PTI reported.
Begins To Change Export
Coke-Hamilton says “Shrinking trade volume alongside the deepening of global economic flows might add 3% towards global trade growth. This is a shift in globalization and trade volume."
Pamela, during her discussion on the series of events last week claimed it comes as an indicator for future changes in trade flows.
She noted Mexico as one of the countries that is undergoing significant changes, as exports that previously flowed towards the US, China, and Europe are now slowly increasing in markets such as Canada, Brazil, and India. Similarly, Vietnam is starting to divert US and Chinese trade focus towards the Middle East, North Africa, the EU, and Korea.
These developments are also affecting the apparel industry in developing countries which is a significant driver of employment and economic activity. Coke-Hamilton cited Bangladesh, the world’s second-largest garment exporter, as a notable example. If the proposed 37 percent reciprocal tariff on Bangladeshi textiles is implemented, it could reduce $3.3 billion of yearly exports to the US by 2029.
She underlined the fact that developing countries need to focus on geographical concentration, diversification, value addition, and regional integration in order to protect themselves from unforeseen future shocks whether coming from a pandemic, climate catastrophe, or abrupt policy shifts.
"Her remarks indicate that developing countries have not only pathways to respond proactively, but to navigate periods of uncertainty well into the future," she stated.
Tariff War Enters A Strategic Phase
Even before the 90-day grace period and the subsequent ratcheting of tariffs, preliminary projections by the International Trade Centre and CEPII suggested that there would be a loss of approximately 0.7% in global GDP by 2040. Mexico, China, Thailand, some southern African countries, and even the US are expected to suffer the most from these economic shocks.
Cutler, who serves as the Vice President and Managing Director of the Asia Society Policy Institute (ASPI) based out of Washington DC, remarked on China’s 125 percent tariffs on US goods stating, "China is in for the long haul." It has also been claimed that China has stated it is done retaliating with tariffs, signaling that they have plenty of other options that could be engaged if the US decided to escalate further (“They have lots of other tools in their arsenal,” some experts believe).
She also pointed out that with tariffs of 145% on Chinese goods entering the US and 125% on US goods entering China, trade between the two nations has frozen.
"At this point, it is unclear how long these tariffs will remain in place, but Washington and Beijing will have to come to terms at some point," she said. “Both of them will realize they must engage and manage the situation, and deal with the downward spiral.”
ASPI Vice President of International Security and Diplomacy Daniel Russel noted, “Chinese President Xi Jinping does not seem to be moving forward with any direct escalations.”
Xi “is banking on the fact that ‘Trump’s tariff tantrum’ will collapse under the weight of the response from the US market.”
Beijing’s recent activity suggests, to Russel, that they are beginning to move strategically away from this form of retaliatory move.
"By stating that it is going to ‘ignore’ US tariff increases, Beijing is not trying to win a trade war, but rather trying to endure it and outmaneuver Trump. They want to reinforce their economy, expand their diplomacy, and create pressure on the US’s allies so that they can stabilize. Xi’s tour in Southeast Asia aims to widen China’s economic influence in the area at a time when the US is lashing out and antagonizing its allies,” Russel stated.
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