Fresh job creation is slowing down with local products price rising hitting citizens
By Anjan Roy
TORONTO: As US president Donald Trump’s new tariffs take hold globally effective August 1, the US economy is reeling with a new reality. Stocks have gone down on a wide front and new data reveals that the economy is slowing down. Prices have not gone up sharply since the Trump tariff tantrums began.
July figures released now show the US adding only 73,000 new jobs, which is one of the lowest. Fresh jobs creation, a key measure of the tempo of the economy, has been somewhat slowing down and now the chickens come home to roost.
America is waking up to the new reality of a paradigm shift. A bastion of free economy and free trade, America now shifts gear to a protectionist economy. This had not only disappointed the closest American allies. It is disappointing the common Americans as well.
Contrary to what Donald Trump has been claiming that other countries must pay, the realisation is downing that it is Americans who have to pay higher for many of the products they have been used to. Of course, the real impact of this hit would come gradually.
Some things taken for granted for as long as one remembers, European wines would be costlier than before as the US did not include European wines in the exempted list as was desperately sought by the fine wine producers of France or Germany or Italy.
US has sought to punish its northern neighbour, Canada, with one of the highest general tariffs. US announced a 35% tariff on Canadian exports for failing to conclude a deal as the US wanted. Mexico and China have been so far exempted from the current round as the trade talks with both of them are currently on.
Similarly, one of the most coveted articles, Swiss Watches, would be costlier as Switzerland has been placed in one of the highest tariff brackets. The Swiss watches will attract a 39% entry tariff into US. A British based company, which handled this trade in Swiss watches in UK and USA expects this to drive down demand.
India has been placed in the relatively high tariff category of 25%. If Donald Trump’s punitive tariffs for purchasing Russian crude simultaneously kicks off, then India could be driven off the American markets.
Electronics exports from India, one of the top supplier of the items, will now attract a duty of 25% up from 10%. Taiwan, which is the other major exporter, will attract slightly lower rate of 20%. Indian exports of garments, footwear and accessories would also attract the 25% set for India.
There is a small window available before the tariffs actually work out. All current shipments made between now and October will be exempt from the new tariffs. However, this is a small window as shipments cannot be radically raised within a short period as these are booked far in advance.
Many countries now have expressed a sense of relief and complacency that the tariffs announced are the least of a nuisance. For example, Bangladesh will be charged a tariff of 20% which it feels a win given the much higher rate of 37 per cent announced earlier. This places the country on a relative parity with other competing countries like Indonesia, Pakistan or Vietnam.
The ultimate impact of the tariff would be calibrated. It might be because of the large market US provides, exporters might choose to lower their ultimate price to compensate the impact of tariff on demand.
However, there are clear limits to this either as even in the present scenario, the margins are not so large that a country could bring down prices by the extent of the tariff to retain market share.
Of course, there are countries, like China, which could choose to do it for the sake of earnings, to drastically lower export prices. But that does not help in the long run excepting holding on to a market share or increasing it at the cost of competitors. These developments are a throwback to a different world by almost three hundred years.
This was a time of a different mindset and thinking. In the sixteenth and seventeenth century when the Asian economies of India and China constituted the bulk of global economic activity, there was a school of thinkers in Europe who believed high tariffs preventing larger imports and greater exports were the key to economic success. India in those was a big economy and accounted for the greater part of global exports.
Even in the decade immediately after the death of Aurangzeb, extant data showed the largest amount of import in Bengal customs house was gold. That meant Bengal exported more and its imports were less so the balance of payments was squared by imports of gold and silver.
The European thinkers of those days —called the Mercantilists—believed gold imports were good for countries and therefore pursue a policy which restricted imports and exports of goods. This line of thinking continues till much later even in the nineteenth century, when after the Industrial revolution in England had changed the basic ideas of economists.
Adam Smith had argued that trade across countries increased overall benefits. By early nineteenth century the economists were talking of theory of comparative advantage leading to increase in welfare of all trading nations.
But American isolationists had believed otherwise even much later. The Smoot-Hawley Act in the later 1920s had empowered the American administration to impose high tariffs on imports. It is believed that the tariffs leading to rising prices and shrinking demand had contributed to the worsening of the overall economic situation culminating in the Great Depression of the 1930s.
Maybe, it is early days. What impact the Trump tariffs could eventually have on the American and then the global is not clear as of now. But as these tariffs and their effects work over the economy, the future delineations will start to emerge. (IPA Service)
