President Trump claimed the deficit had fallen by 76%. However, a Reuters analysis found that while it declined with China, it widened with Mexico, Vietnam, Taiwan and Thailand. The tariffs’ burden largely fell on US consumers, and following a US Supreme Court ruling, nearly 2,000 importers have filed refund claims worth $175 billion, writes former CBIC Chairman Najib Shah.
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The immediate fallout was the severe impact on global trade. Exporters across the world scrambled to address this development. Governments had to step in support the exporters. A positive fall out was the realisation that the world is much more than US—new markets were explored, new trade agreements pursued and signed./span> The ‘Declaration of Economic Independence’ was supposed to result in increased growth, lesser trade deficit, create manufacturing jobs. The trade deficit which plagued the US for multiple reasons other than its low tariffs was the immediate trigger for this rection. Powers, rarely used, under the International Emergency Economic Powers Act (IEEPA) were invoked and the basic tenet of democracy, no taxation without representation, was bypassed. The Congress became a mere spectator. The US Supreme Court, packed though it was by Trump’s appointees, found the use of the emergency powers to impose tariffs unconstitutional. The power to impose tariffs the Court unequivocally held vests only with the congress. Thus the Liberation Day reciprocal tariffs, the China IEEPA tariffs, the Canada and Mexico fentanyl tariffs were all impacted. Reuters has recently in a report carried out an excellent analysis about the impact on the US economy. Trade deficit did reduce marginally—though reports dramatically vary as to by how much and if it had reduced at all. /span>
President Trump himself believed that deficit had reduced by 76%. The Reuters analysis suggests that while it had reduced in respect of China, it had in fact increased in respect of Mexico, Vietnam, Taiwan, Thailand. What did happen is numerous product specific exemptions crept in —consequently as a /span>report by Cato Institute, a US based think tank, points out, the applied reciprocal tariff rate fell from 21.5% to 13.6% by the time of the Supreme Court’s ruling. Tariff related lobbying obviously was furiously at work and the US tariff became complicated with huge business uncertainty. The impact of the tariffs fell on the US consumers. Somebody had to pay for the increased tariffs— and it most certainly was not the foreign exporter but the US importer who in turn added it to the price. Inflation was the result—well above the Federal Reserve’s preferred target of 2%. What the US treasury did earn was huge additional revenue because of the increase in tariffs. The revenue showed a 200% increase from the previous year. This was however short lived. Consequent to the Supreme Court ruling nearly 2000 importers have filed US$ 175 billion worth of refund claims which are pending with the overworked US Customs & Border Protection’s electronic refund system./span> Manufacturing jobs were supposed to ‘roaring back’ in the inimitable style of Donald Trump. That did not happen—the jobs in fact fell down because of the tariff uncertainty and the steep increase in inputs cost. The US GDP did grow marginally—its slowest pace in 5 years./span> The US trade partners rushed to finalise trade agreements with US as a means of beating the reciprocal tariffs. They were asymmetric arrangements with the US using its large market advantage to browbeat countries into lop sided agreements. The Supreme Court ruling has led to most countries hitting the pause button and reconsider the agreements. In the immediate fall out of the Supreme Court ruling, a 10% temporary global tariff was imposed on all US imports. In April this year on the day of the Liberation Day anniversary, a 100% tariff was imposed on certain pharmaceuticals and adjusted tariffs were imposed on steel, aluminium and copper. Further investigations on products which allegedly hurt US national security under various provisions of law are being initiated —these will stand a better chance of judicial scrutiny./span> Countries had made investment pledges —ranging from US$ 6.1 billion by Ireland to US$ 1400 billion by UAE. It is unclear whether these pledges will be honoured. The US-Isreal-Iran conflict has added to the uncertainty. Oil prices have been fluctuating violently as also prices of metals. Shipping lines have been impacted and insurance costs have spiralled. Trade has been impacted. An uneasy truce has been declared — and we must hope it survives the various unresolved issues./span> President Trump remains undeterred — he has now threatened a 50% tariff on any country which supplies military weapons to Iran. It is not clear as to which provision of law will be invoked. What the world needs is peace, stability, certainty; for shipping lines to be free; for WTO rules to be honoured and trade to flourish. Tariffs is not a beautiful word after all in this globalised world./span>
—The author, /span>Najib Shah, is former Chairman, Central Board of Indirect Taxes & Customs (CBIC). The views are personal.
(Edited by : Unnikrishnan)
