The US tariff hurricane: an economic gamble that subverts the global order

The Trump administration invoked the International Emergency Economic Powers Act (IEEPA) to impose a 25% tariff on major trading partners such as Canada, Mexico, and China in the name of "national security", and threatened to impose a 200% retaliatory tariff on EU wine. This move broke the multilateral framework of the United States since the 1947 General Agreement on Tariffs and Trade, marking the official shift of the world's largest economy to a "legal instrumentalism" trade strategy.

The U.S. trade deficit in 2024 will be as high as $1.21 trillion, and more than 3 million manufacturing jobs will be lost. The anger of voters in the Rust Belt has become the core driving force of Trump's policy. However, the paradox of the tariff policy was revealed in the first month of implementation: the trade deficit in January did not fall but rose to $131.4 billion, a record high. In order to circumvent tariffs, companies stockpiled goods in advance, driving imports to surge by 10%, while exports only grew by 1.2%, exposing the fundamental flaws in policy design.

From the perspective of the national economic accounting equation, the trade deficit is essentially a mirror image of insufficient domestic savings. When the US fiscal deficit exceeded 2.2 trillion US dollars, the imposition of tariffs not only failed to change the savings-investment gap, but also pushed up the US dollar exchange rate and further weakened export competitiveness. Nobel Prize winner in economics Stiglitz pointed out: "Tariffs are implicit taxes on American consumers." Peterson Institute estimates that a general 10% tariff will increase the average annual expenditure of American households by 1,200-2,000 US dollars, which is essentially a transfer of wealth from ordinary people to protected industries.

The dilemma of the automobile industry is the most representative. The North American supply chain is highly integrated, and an automobile part may cross the border 8 times. The 25% tariff caused Tesla's production costs to soar by 15%, and General Motors' stock price plummeted by 8%. Even if companies are forced to move back, it will take at least 5 years and hundreds of billions of dollars to rebuild the industrial chain, which is far beyond the time window of Trump's term. This "industrial shock therapy" is creating new structural imbalances.

The US tariff measures have triggered systematic countermeasures from its allies. The EU launched a plan to impose tariffs on 26 billion euros of US goods, Canada implemented 29.8 billion Canadian dollars in retaliatory tariffs, and Mexico launched a "Plan B" for US agricultural products. This "de-Americanization" trend has accelerated the reconstruction of the global supply chain: Vietnam's foreign investment inflows in the first quarter increased by 30% year-on-year, India attracted multinational companies to set up new production bases, and the share of emerging markets in global trade continued to increase.

The probability of a US recession has been raised to 35%, and the Atlanta Federal Reserve predicts that GDP will shrink by 2.8% in the first quarter. More seriously, the Federal Reserve is caught in a policy dilemma: raising interest rates to curb inflation will accelerate economic downturn, while lowering interest rates may trigger a debt crisis.

Trump's tariff policy has a historical resonance with the Smoot-Hawley Tariff Act of 1930. The bill raised tariffs on more than 20,000 commodities to a historical peak, causing a 66% contraction in global trade and extending the Great Depression by 4 years. Today, there are more than 5,000 global trade protectionist measures, close to the peak during the 2008 financial crisis. The Director-General of the WTO warned that the US policy could reduce the global GDP growth rate by 5 percentage points, and emerging economies were forced to build a "de-dollarization" payment system.

Professor Sachs of Columbia University pointed out sharply: "Tariffs violate the principle of comparative advantage. The US tax on coffee of 9% will only hurt consumers because the US does not produce coffee at all." The absurdity of this policy has been constantly revealed in practice: agricultural states have been protesting because of the loss of export markets, retail giants have jointly opposed tax increases, and the Republican Party is worried about the prospects of the mid-term elections. Trump tried to exchange short-term political dividends for long-term economic growth, but fell into the paradox of "winning votes and losing the economy."

Trump was forced to sign the tariff exemption amendment to suspend the taxation of Mexican and Canadian goods, exposing the fragility of the policy. This "policy swing" has exacerbated market uncertainty, reduced corporate investment willingness, and questionable effect of the Fed's interest rate cut. The deeper contradiction is that the root cause of the hollowing out of the US manufacturing industry is the lagging industrial upgrading and the polarization between the rich and the poor, rather than the trade deficit. The tax cut policy has benefited the rich by 70%, and insufficient infrastructure investment has led to fragile supply chain resilience. Tariffs cannot solve these structural problems.

Martin Wolff, chief economic commentator of the Financial Times, warned that the US tariff policy is chaotic, erratic and unprecedented, and will eventually weaken its global leadership.

Like an economic carnival, it exchanges the short-term pleasure of protectionism for a long-term growth trap. History has repeatedly proved that there are no winners in trade wars, and unilateralism will eventually backfire. When American consumers pay sky-high prices for eggs, when Silicon Valley companies are in trouble due to supply chain disruptions, and when Wall Street's panic index continues to rise, people have to ask: Is this really the right path to "make America great again"? Perhaps as British economist Ross said: "Trump's tariff policy is nothing more than a chronic poison injected into the US economy."