President Trump’s use of tariff wars as a weapon of global politics has been interpreted in terms of classical models of international trade, with markets expecting a decline in the growth rate of the global economy. But the tariffs being imposed by President Trump have typically not taken the form of building walls against all imports. Instead, they are country and commodity specific. Their impact will then be better understood in terms of specific areas, primarily cities, both in the targeted countries and in the US.

The course of the Trump version of international trade negotiations can only be fully understood if we see it in the context of globalisation. The initial expectations of globalisation creating a global village have been given a quiet burial. Equally importantly, the argument that globalisation is a process of the rich countries ruling over the poor has lost much of its potency. Some less-developed countries, like Bangladesh, have been able to get better terms for some of their products, such as garments, in Western markets, enabling them to compete more effectively against other developing countries.

And, more important, from President Trump’s point of view, the industries in the West that have lost jobs to centres in the emerging markets have come under severe pressure. It is these declining urban settlements in the US that form the core of what has come to be known as President Trump’s base. The economic logic of their support for the President has, so far at least, easily trumped his many faults.

Trump’s plan

Having come to power on claims of an ability to make great deals as well as champion the cause of industries losing out to globalisation, President Trump has brought both these weapons to the realm of international trade. He sees globalisation not in terms of any all-compassing process but rather as a set of specific economic circuits on which he can make deals with other countries.

This narrow circuit-based approach ensures he does not really care too much about whether the entity at the other end of the circuit is a long-standing American ally. President Trump is apparently convinced that the only way to put pressure on those who are hurting his base is to close the US market selectively to specific products from these countries. If his strategy works, he expects to gain concessions from these countries.

The trouble with this somewhat narrow view of globalisation is that the course each circuit takes is not permanent. A circuit can be seen as a specific link between a command centre that controls capital and decides where it will get its resources from, whether these resources are in the form of trained manpower or any other input.

If the main concern of the command centre is the cost of labour, the global circuit will connect it to centres of cheap labour elsewhere in the world. These command centres often tap resources where they are cheapest and then move the products to the markets of the developed world. If President Trump’s tariffs prevent them from importing their finished products into the US they would have to create a separate circuit to cater to the American market.

The continuation of President Trump’s aggressive tariff strategy will then have its costs for the US as well. If the command centres that cater to the American market cannot tap the cheapest resources in the world, their products will necessarily be more expensive. If these more expensive products include items like steel that are inputs into other products, it will affect the competitiveness of these other products in the global market.

This will have its impact on growth. In the short term as capital rushes to capture opportunities in the US market created by tariff barriers created by President Trump, there will be a boost to growth. But the loss of competitiveness will in the medium and longer term will hurt the US economy.

The President may believe that if other countries buckle under the pressure of his tariff wars and open their markets to products produced by his base, America’s dying towns would recover. But the countries he is trying to pressurise may also believe the President is painting himself into a corner.

Over time, products produced in the US will become less competitive in the global market. Indeed, US companies like Harley Davidson may feel the need to move out of the US. Short-term growth, together with President Trump’s experiments with half-truths, may invigorate his base, but the longer term loss of competitiveness will extend the crisis to other centres of the US economy.

The writer is a professor at the School of Social Science, National Institute of Advanced Studies, Bengaluru.

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