“When the chips are down, I rise up!” This statement, emblematic of Donald Trump’s defiant spirit, reflects the essence of his bold approach to politics and economics. Despite being impeached twice and facing several federal charges, US President Trump secured a decisive second-term victory with a substantial majority. His campaign promises echoed those of his first term, championing “America First” at the centre of his strategy.
As President Trump prepares to take charge on January 20 after a short-lived interlude, his approach to the ‘tariff games’ – a mix of tariffs, transactional diplomacy, and economic nationalism looms large over global trade. With this renewed focus on protectionism and disengagement, the question arises: what will this mean for the future of global trade and the US economy?
The tariff games through Trump’s lens
Trump’s approach to tariffs is rooted in his “America First” ideology, which views trade deficits as a symbol of economic weakness. To address this, he sought to rebalance trade by implementing protectionist measures.
During his first term, his first goal was to reduce trade deficits, believing that tariffs could help bring balance to US trade. Second, by making imports more expensive, Trump aimed to restore manufacturing and revive domestic industries, particularly in sectors like steel and automotive. Finally, tariffs served as a bargaining chip, pressuring trading partners into securing more favourable trade deals by leveraging America’s market as a powerful incentive.
Trump’s key focus in the tariff games was China. The US-China trade war, which began in 2018, saw Trump imposing sky-high tariffs on over $360 billion worth of Chinese goods, targeting everything from steel to electronics. In retaliation, China imposed tariffs of more than $110 billion on US agricultural products, severely affecting American farmers. While the Phase One trade deal in 2020 provided some temporary relief, it failed to address the deeper, underlying tensions.
Trump did not limit his tariff strategy to China alone; he also imposed tariffs on European steel and aluminium, citing national security concerns. This move strained transatlantic relations and led to retaliatory tariffs, impacting industries like agriculture and whiskey production. Additionally, Trump renegotiated the North American Free Trade Agreement (NAFTA), resulting in the United States-Mexico-Canada Agreement (USMCA). While the new deal introduced stricter auto manufacturing rules and labour standards, it also created uncertainty in North American trade relations.
As the US is India’s largest trading partner, Trump’s high tariffs were not only directed at China and traditional regional allies but also at India. During his first term, Trump imposed a 25% tariff on steel and 10% on aluminium from India and other countries. In a rally in Michigan on September 18, Trump remarked, “These people are the sharpest… They are at the top of their game, and they use it against us. But India is tough. Brazil is very tough, China is the toughest of all, but we are taking care of China with the tariffs.”
His remarks underscored the broader scope of his tariff strategy, extending beyond China to far-off countries such as the European Union, Mexico, India, and others with growing trade surpluses with the US.
Trade wars: Round two?
With Trump now entering his second term, it is likely that countries will continue to face trade restrictions, albeit with some nuanced shifts. China will remain the primary target of his tariff policies. Expect an escalation in tariffs and trade restrictions, particularly aimed at China’s technology and industrial sectors. Additionally, Trump may intensify efforts to decouple critical supply chains from China, focusing on key areas like semiconductors and pharmaceuticals, which are vital to both US national security and economic interests.
The appointment of Howard Lutnick as the secretary of Commerce signals a tougher stance on China. Lutnick, who will also oversee the US tariff and trade agenda, is expected to play a pivotal role in shaping the administration’s trade policy, including taking on direct responsibility for the Office of the United States Trade Representative. This appointment further underscores the administration’s commitment to confronting China economically.
The Trump tariff games are likely to continue, with his disdain for multilateral trade institutions like the World Trade Organisation (WTO) potentially leading to their further marginalisation. Trump may push for bilateral agreements, sidelining established global trade norms. Europe could once again find itself under scrutiny over trade imbalances, especially in sectors like automotive exports.
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Trump’s first term saw turbulent trade relations with India, marked by the imposition of tariffs on Indian steel and aluminium and threats to crack down on H-1B visas. Despite the strategic partnership between the US and India, Trump’s policies were not always aligned with India’s trade interests. India, which had a growing trade surplus with the US (projected at $35.3 billion for FY24), could also find itself facing tariff pressures. However, India’s strategic role as a counterbalance to China in the region may provide it with some leverage in negotiations.
While defence and technological collaborations between the US and India could help ease trade tensions, it is unlikely that Trump will abandon his “America First” rhetoric. As such, India will need to carefully navigate trade negotiations, balancing its economic ties with the US while avoiding being drawn into a tariff war.
The rise of Trump’s “America First” strategy will undoubtedly come with significant repercussions. Trading partners may impose reciprocal tariffs, leading to higher prices for imported goods, which could impact everyday Americans and further destabilise global markets. Over-reliance on tariffs may also hinder businesses’ ability to adapt to shifting global supply chains. While tariffs can be a powerful economic tool, their long-term effectiveness depends on careful execution and international cooperation. Trump’s tariff policies may appeal to domestic constituencies by showcasing a tough stance, but they risk alienating allies and undermining economic stability.
All in the name of ‘Make America Great Again,’ the pressing question remains: Can ‘America First’ truly coexist with the ‘global economic order’? Trump’s tariff policies represent a strategic economic gamble, and he is keenly aware of the stakes. In the Trump 2.0 era, the world may once again witness a high-stakes game where tariffs act as both a shield and a weapon to redefine the global economic order.
Prerna Chahar holds a PhD from the Centre for Canadian, United States, and Latin American Studies at the School of International Studies, Jawaharlal Nehru University, New Delhi. Her research focuses on the triangular relationship between the United States, China, and Taiwan, aiming to explore prospects for managing peace and stability in the Indo-Pacific region.
