Mr. President, trade wars have no winners…!

In much the same way as in the 1930s which saw the Great Depression, US President Donald Trump’s tariffs threaten to destabilise the global economy by sowing the seeds of recession. 

Expectations are rife that global growth will decelerate in 2025, with investment banks, Goldman Sachs, and JP Morgan, predicting that the US will slide into a recession before the end of the year.  These predictions remain despite the 90-day postponement in the implementation of “reciprocal tariffs”.

It is almost impossible to argue that Trump’s decision to postpone implementing “reciprocal tariffs” is a “relief” provided to the targeted countries because tariffs are central to the trade policy that he has been pursuing since his first term in office. 

The 56 countries (other than China) on whom the tariff burden is sought to be increased must consider Trump’s decision to postpone the implementation of these tariffs to better prepare themselves. 

India would have to consider carefully how it can find an effective negotiating counter to trade off the 37 percent tariff burden that President Trump imposed through his April 2 announcement without conceding too much during the on-going bilateral trade agreement negotiations.

Trump’s protectionist policies, which are here to stay, have an uncanny similarity with the sweeping protectionist measures that the US had adopted in the aftermath of the First World War. 

Trade protectionism in the US escalated after Herbert Hoover won the 1928 elections with the Republican Party expressing its “belief in the protective tariff as a fundamental and essential principle of the economic life of [the] nation”.

It justified protectionism arguing that adherence to this policy was “essential for the continued prosperity of the country” and that “the standard of living of the American people [were] raised to the highest levels ever known”. 

Several US trade partners have either imposed retaliatory tariffs or are threatening to do so. China imposed retaliatory tariffs and has vowed to “fight to the end”, a clear sign that a bruising trade war has begun.

However, most countries avoided a confrontationist approach, preferring to negotiate with the Trump Administration.

Stephen Miran, the current chair of the council of economic advisers, indicated that this approach has the backing of the American president who “views tariffs as generating negotiating leverage for making deals”.

While negotiating bilateral deals with more than 50 countries is going to be arduous and time-consuming, it is also going to be quite complex. However, the longer-term implications of the Trump tariffs are even more worrisome.

Since the end of the Second World War, global trade has consistently drawn sustenance from the multilaterally agreed set of rules, first through the implementation of the General Agreement on Tariffs and Trade (GATT) and then through the implementation of the covered agreements under the World Trade Organization (WTO). 

In his first term, Donald Trump had taken several drastic measures, especially by jeopardising the functioning of the dispute settlement body of the WTO. 

The trade war that he has now initiated will cause an existential crisis for the multilateral trading system.

Trade wars have no winners: Herbert Hoover learnt this bitter lesson in the 1930s. This unfortunate reality is staring Trump in the face. He should have paid heed to the adverse consequences of the trade protectionism he had pursued in his first term before embarking on the misadventure of a trade war. 

About author: Biswajit Dhar is Distinguished Professor, Council for Social Development, New Delhi. He was a Professor at the Centre for Economic Studies and Planning in Jawaharlal Nehru University, New Delhi

This an edited version. Originally published under Creative Commons by 360info™.