World’s new diet of trade wars and protectionism

Did Americans feel liberated on April 2? It is hard to determine from what exactly. What did President Donald Trump mean by the US having been “looted, pillaged, raped and plundered by nations near and far?”

It was not just the motivation behind the extraordinary blanket imposition of tariffs that was not clear. Everything about the announcement was opaque, confusing and counterproductive.

All economies have to be prepared for shocks that can precipitate sudden stock market crashes, but it is hard to recall an act of such great self-inflicted financial harm.

This was no small event. This was the world’s most powerful leader ripping up the global economic order that had prevailed ever since the end of the Second World War; the era of Bretton Woods, the General Agreement on Tariffs and Trade, and the World Trade Organization. It spells the death of globalization and a return to the sort of protectionism not seen since the 1930s. It was, in many ways, a trashing of the very economic order that had propelled the US economy to being the most dynamic, most competitive and most powerful on the planet.

But given the nature of decision-making in the Trump White House, uncertainty remains. Many still ask if it will actually happen as set out in the Rose Garden. Trump is not immune from the impact of stock market falls. His administration has not been averse to sudden shifts and reversals of policies, including on tariffs.

On the assumption this all goes ahead, what could be the impact? It certainly raises questions about doing business with the US. Businesses want stability, to be able to plan ahead, but how is that possible with this form of decision-making? Investors may take their money elsewhere.

These tariffs spell the death of globalization and a return to the sort of protectionism not seen since the 1930s

Chris Doyle

Does the US risk creating bad blood with erstwhile allies? This will hit the US economy, but it will also risk a global recession, even depression. Few leaders were calling for the US to do this. Few want a trade war even now, but it looks inevitable. It is just a question of the extent.

China, which was hit by tariffs of 34 percent in addition to the 20 percent previously imposed, did not wait to consider the ramifications. In all probability, the EU will respond too. Some other states have pressed the pause button. The UK, for example, has decided not to retaliate at this stage but to push for a trade deal with the US, notably not described as a “free trade deal” in Westminster. Other states may also look for trade deals with the US to offset the worst effects, but on what sort of terms?

Anomalies abound. Reunion, the island in the Indian Ocean, got hit by a 10 percent tariff even though it is part of France and therefore the EU, whose rate is 20 percent. Countries like Lesotho, whose major exports are diamonds, were also hit hard, but this only means that US consumers will have to pay more for their diamonds.

And just what is the point of imposing a 41 percent tariff on Syria, which the US has sanctioned for decades? In 2024, the US imported just $11 million of goods from the crisis-stricken state.

Israelis may want an explanation why their great ally and protector has decided to impose a 17 percent tariff on their goods. Myanmar, which has just endured an appalling earthquake, was hit by a massive 45 percent.

Perhaps most bizarre of all was the identity of one of the few countries not on the list: Russia. It is sanctioned, said administration officials, but in 2024 US-Russia trade was valued at $3.5 billion.

It is about trying to impose US economic dominance, but with serious questions as to whether it can work

Chris Doyle

There are other unforeseen consequences. While the EU got hit by a blanket 20 percent tariff, the UK will only suffer 10 percent. Brexiteers claim this is a wonderful benefit of leaving the UK, but the reality is that it is now harder and more expensive for Britain to trade with both the EU and the US than it was before Brexit. But the trickier challenge will be Northern Ireland, which gets a lower tariff than the Republic of Ireland to the south. This will reopen the whole border issue that bedeviled the Brexit talks.

This is politics determining economic policy. It is about trying to impose US economic dominance, but with serious questions as to whether it can work.

Who wins out of this? Inflation is likely to spiral, most economists say. Trump came to power promising to reduce the cost of living but, according to the Federal Reserve chair, this will slow growth. Even some of his richest supporters will have been hit hard by the stock market crash, the worst since the COVID-19 pandemic. And what about the dollar? Is its status as the world’s strongest and most stable currency waning?

For the moment, it feels like the world will have to face a diet of trade wars and protectionism. It will be a case of battening down the hatches.

• Chris Doyle is director of the Council for Arab-British Understanding in London. X: @Doylech