Tariffs and non-neoliberal globalization – II

US President Donald Trump recently enhanced tariffs unilaterally on all countries – with a base uniform tariff of 10 percent applied on all countries, along with half of the ratio of trade balance divided by imports taken as a percentage.

In the aftermath, China has shown significant retaliation, where rounds of retaliation from each side have settled for now, whereby US has overall placed 145 percent tariff on China, while China has imposed overall 125 percent tariff on the US.

Apart from some retaliation shown by a major trading partner European Union (EU), where it had recently imposed a 25 percent retaliatory tariff on the US, has now taken back that decision in the light of reversal in US policy, whereby countries that have basically non-retaliatory stance against US with regard to tariffs – which does not include China for instance, and for obvious reason with regard to its significant retaliatory policy – against those countries the US has paused application of tariffs for 90 days, over and above the uniform tariff of 10 percent it has imposed on all countries, which will remain.

Hence, around 75 countries according to US authorities have been in discussions for negotiating a more suitable outcome for both sides. Hopefully, this could ultimately mean lesser tariffs, and non-tariff barriers for all countries.

Having said that, even in a desirable regime of lower tariffs, and non-tariff barriers, the very existence of fast-unfolding nature of existential threats like climate change crisis, and related ‘Pandemicene’ phenomenon, it is important that a certain necessary level of core industrial base is indigenized in each country, so that the world is better prepared for, firstly, genuine supply-chain crises as were witnessed during the Covid pandemic.

Secondly, possible politically-, ultra-nationalist influenced agenda of disrupting supply lines to over-care for demos locally, as was done during the pandemic, and as being witnessed overall in an increasing level of rhetoric during election campaigns over the last few years. Hence, in the same vein, it was seen during the pandemic in the shape of practice of vaccine nationalism, and hoarding of a lot more agricultural produce in-country than was required.

Thirdly, it is indeed important for all countries to develop a minimum necessary level of domestic production to better prepare against the neoliberal oriented trading rules like unwarranted existence of intellectual property rights (IPRs)/patent walls for commodities like vaccines, which should be global public goods, and which otherwise have lot of taxpayers’ money in its production related investments in the first place, not to mention the need to share knowledge for reaching better vaccines.

Here, it also needs to be highlighted that what is being called international trade is actually the disaggregation of production process for efficiency, and profit gains, while countries continue to remain at the lower end of value gains in the name of practice of comparative advantage, not to mention the lack of standards met for appropriate labour working conditions, and incomes.

In this regard, world renowned linguistic, and political philosopher and activist Noam Chomsky highlighted this concern as ’…just take what they call trade. Now there are so-called conservatives, very excited that trade is increasing. So for example NAFTA [North American Free Trade Agreement] is supposed to be a great triumph of conservatism; it increased trade between Mexico and the United States.

Well it’s true that cross-border interactions between Mexico and the United States increased, but would Adam Smith, or any classical liberal, or traditional conservative have called that trade. I mean suppose ‘General Motors’ assembles parts in Indiana, and sends them to Illinois for assembly, and then to New York to sell. Is that trade?

Well, suppose happens cross the Mexican border, but it’s still internal to a huge command economy. Is that trade? Well it turns out that if you look at the rough figures, which are all that we have, before NAFTA, the part of cross-border interactions between Mexico and the US that was internal to a corporation was about 50 percent, and now it’s about two-thirds. That’s no more trade if the Kremlin produce things in Leningrad, and send them to Ukraine for assembly, and to Poland to sell. That’s just operations internal to command economies.

We have to simply just in the talk about trade, or free trade, or entrepreneurial values, or consumer choice, or democratic functioning and so on, it’s putting us in a world of illusion and fantasy. That’s why these terms are all demeaned, not just conservative.’

Hence, in that sense the steps taken by US President Donald Trump in essence makes sense that he wishes to care for appropriate level of depth of local industry, and for labour rights in terms of availability of appropriate amount of work, given after all the share of US manufacturing in global output has declined a lot over the years.

Internationally renowned economist, Mohamed El-Erian in his recent interview to Bloomberg pointed out in this regard: ’So think of what has happened in last two months.

The last two months we have gone from US economic exceptionalism, to stagflation… Consensus is, we’re in an uncertain period. Where I think is a really important point is where is this leading to.

And as we say this there are two possibilities. One I call it the Thatcher-Reagan where we through disturbances, where we rewire the economies, and we come out with a streamline government, better debt dynamics, and an able private sector, with major innovations coming up that can change productivity, and a fairer trading system. That’s option ‘A’. Option ‘B’ is Jimmy Carter on steroids, meaning a stagflation that gets embedded in the system, that paralyzes policymakers, and it takes a major slowdown in order for the policy stand to respond. I think, it’s 50:50. The market sees it as 80:20.’

Yet, the media in general, and the ‘Chicago boys’-styled policymakers continue to see the increase in tariffs as basically a gloom and doom situation, while this could provide an opportunity, especially for developing countries like Pakistan, to understand the need for greater protectionism to develop industrial policy accordingly in general, and particularly at a time of existential threats, and polycrisis where global supply disruptions require meaningfully deep and diversified industrial base.

More so, this moment offers the global South to push for more fairer trade deals, and struggle with much greater vigour against the neoliberal multilateral order, especially in terms of IMF policy, and WTO’s (World Trade Organization’s) trading rules. In addition, short-term stagflation if it ends up that way is still a much better cost to pay for both US, and countries overall, if the instrument of tariff leads to a fairer trading system, and a rollback of the neoliberal order more broadly, in turn, to bring much-needed sustainability, and greater resilience.

At the same time, the short-term disturbance in the stock markets should be ignored to the maximum, because the ‘virtual parliament’ of ‘hot money’, or foreign portfolio investment (FPI), should not have unwarranted bearing on policy decisions that have roots in broad-based popular opinion, or the will of the people in general for a more equitable, and well-prepared world against shocks.

Having said that, US President Donald Trump’s attempt to address more domestic production, and better working conditions, and income levels for workers at home requires in addition to ridding the global trading regime of the neoliberal order, which is likely going to happen if tariffs and non-tariff barriers are placed in a way so that a more broad-based application of a good balance of protectionism, and fee trade could be reached globally, it is important that he checks the overall deep-rooted neoliberal order in both domestic economy, and also in multilateral institutions like IMF, World Bank, and WTO. This will, in turn, allow reducing otherwise highly significant income-, and wealth inequality levels, and reaching overall fairer trading rules, especially for the global South.

Copyright Business Recorder, 2025