Donald Trump’s plans to introduce tariffs of 10% on all US imports will likely push the fragile world economy into recession by forcing up inflation, driving up interest rates and further reducing already weak consumer demand in the US, Europe, China and Japan.
Trump’s policy is “very bad,” according to Alex Durante an economist at the US Tax Foundation. “Tariffs make consumers poorer. They shrink the economy.”
While Trump has repeatedly claimed that foreign businesses and other countries will pay for US tariffs the reality is, experts say, that it is US consumers and businesses who ultimately pay the higher prices.
Trump’s proposal to impose tariffs of 60% on all Chinese imports could trigger a brutal trade war between the world’s 2 largest economies.
The US, currently the world’s largest producer of forest products, is the highest per-capita consumer of industrial wood and is the second largest consumer market for lumber after China.
The Chinese and US forestry markets, currently closely linked, are central to the $520 billion global timber trade, according to a Chinese study (Impacts of the China-US trade restrictions on the global forest sector: A bilateral trade flow analysis) published in (2021).
This study modelled two scenarios in which the US and then China imposed tariffs of 25% and 30%, finding that both China and the US subsequently “significantly” reduced their imports of each other’s forest products.
Product substitution occurred in Asia and Europe, and ultimately, these researchers concluded, “China benefited slightly” from a chaotic industry restructuring, but the US would experience a “major loss” from a timber trade war.
That’s just the economic impact on the global timber trade, modelled on tariffs at half the rate Trump is actually proposing to impose. Start extrapolating these findings out across the entire global economy and what we are looking at is frightening.
Building a huge tariff wall around the American economy would destabilise global markets because “China would retaliate massively and other US trading partners would (also) be unlikely to take it laying down” says Kaury Obstfield, a senior fellow at the Peterson Institute for International Economics.
When China, Europe, Japan and Brazil respond, introducing similar tariffs on imported American goods and services, Trump’s likely response would be to further increase US tariffs, the other countries respond and the world economy rapidly goes into a downward spiral.
It’s this kind of ‘beggar thy neighbour’ economic nationalism that turned the 1929 Wall Street stock market crash into a global depression. Tariffs were met by tariffs, more tariffs and even more tariffs – and this economic warfare caused massive unemployment, human suffering & economic destruction around the world.
No country gained from that economic catastrophe which, many historians believe, ultimately caused World War 2.
