Trump’s tariffs tack shakes global trade

The reelection of Donald Trump as the 47th president of the United States has stirred controversy, with some of his policies alarming not only Americans but people worldwide. These include his crackdown on immigration, his male-and-female-only policy, and his withdrawal from international organizations like the World Health Organization, the UN Human Rights Council and the Paris Agreement. For some, these actions signal a consequential shift in societal and environmental policies.

On the economic front, tariff impositions on top trading partners like Canada, Mexico and China have also made headlines. The 78-year-old Republican has stated that these tariffs are necessary to boost the American economy and address the “extraordinary threat” posed by “illegal aliens and drugs.”

But what exactly are these tariffs, what are their implications for global trade, and how might they affect the Philippine economy?

What are tariffs?

Tariffs are taxes imposed on imported goods from other countries to protect domestic economies, local businesses, and industries.

On 1 February, Trump announced a 25 percent levy on imports from Canada and Mexico, except for energy products from Canada, which will be taxed at a lower 10 percent. Additionally, a 10 percent tariff is being placed on imports from China, which accounts for 13.5 percent of all US imports. These tariffs will remain in effect until the “crisis is alleviated.” However, two days later, Trump postponed the implementation of the tariffs on Canada and Mexico by 30 days, although the threat of tariffs remains. Meanwhile, the tariff on Chinese imports went into effect on 4 February.

“President Trump is taking bold action to hold Mexico, Canada and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country,” a White House fact sheet reads.

To visualize how this might affect consumers: If China sells a basket of bananas for $10, the 10 percent tariff would raise the price to $11.

Effect on exporting countries’ economy

In China’s case, the increased price of products like bananas could lead to higher consumer costs.

According to Forbes, Chinese imports to the US in 2023 were worth $426.9 billion and $401.8 billion in 2024’s first 11 months. The 10 percent tariff on Chinese goods could cause around $40 billion in additional costs to American consumers. Chinese exports to the US include electrical and electronic equipment and machinery, which account for 30 percent of all Chinese goods entering the US.

As a result, the tariffs will likely raise the price of Chinese products, making them more expensive in the US This could reduce demand for Chinese exports. Additionally, China’s economy could experience revenue losses, with its GDP potentially shrinking due to the increased tariffs.

During Trump’s previous administration, he imposed restrictive tariffs on China, which responded by imposing tariffs on US products. This led to a back-and-forth tariff exchange.

Should high tariffs against goods from Mexico and Canada move forward, items like automobiles, computers, petroleum products, crude oil, and gas are expected to become more expensive.

Thus, products from these three countries may be exported to other countries — outside the US — where they can be sold at a lower price.

Another option for nations facing the Trump tariff wall is to put up manufacturing bases in other countries which have favorable trade relations with the US such as the Philippines and from where their products are exported to the mainland.

…And the Philippines?

These universal tariffs could potentially impact the Philippines’ export sector, though the extent of the effect remains uncertain. The final impact will depend on factors like the final tariff rate and the responses of other countries.

Trade and Industry Secretary Ma. Cristina Roque, in an earlier statement, emphasized the importance of collaboration and communication with the US to formulate resolutions that are “beneficial to both our nations and our people,” which could include the possible formulation of preferential trade agreements.

The US was the Philippines’ major trading partner last year. In December, the Philippines exported $947.77 million worth of goods to the United States, accounting for 16.8 percent of the country’s total exports.

Data from the Philippine Statistics Authority show that major Philippine exports include electronic products, which earned $2.80 billion, or 49.6 percent of total exports during the period. Manufactured goods contributed the largest share of total exports, amounting to $4.33 billion, or 76.5 percent.

Roque stressed that free and open trade is essential for economic growth and development in the Philippines and globally.

“We are working earnestly with our trading partners, including the US, to ensure that trade remains a driving force for prosperity,” she said.