The tariff game is back in Washington DC, and in a serious fashion. Wasting no time US President Donald Trump has slapped tariffs on Canada, Mexico and China, 25 per cent for the first two long standing allies and 10 per cent for its major adversary. The small saving grace being that originally Beijing was slated for a whopping 60 per cent. The first round has sparked fears in America of inflation by way of rising prices of groceries, at the pumps, automobiles, to mention a few.

Trump’s order mentions only a 10 per cent rate for imported energy from Canada but leaves the door open for escalated tariffs if countries retaliate. Canada’s Prime Minister Justin Trudeau has talked of a matching 25 per cent tariff on about $160 billion of American imports including alcohol and fruit. The premier of the province of British Columbia has already called on residents to stop buying liquor from America’s “red” states and that American alcohol brands will be pulled out of government store shelves.

Mexico appears to be not too far behind, rejecting what it sees as “slander” from the White House on its nexus with criminal organisations. “If the United States government and its agencies wanted to address the serious fentanyl consumption in their country, they could fight the sale of drugs on the streets of their major cities, which they don’t do and the laundering of money that this illegal activity generates that has done so much harm to its population”, Mexico’s President said on social media.

Mild on China

And China that has emerged relatively unscathed in the first bout has also opposed the punitive measures stressing that the tariffs “seriously violates” the rules of the World Trade Organisation and urging Washington “to engage in frank dialogue and strengthen cooperation”. The consensus is that Beijing will respond in kind to Washington’s move, not be sweeping but measured so as not to elicit another response.

The general expectation now is that Round Two may target the European Union that has always been on Trump’s radar. ” The European Union has treated us so terribly” has been one constant refrain of the Republican President. Published data speak of the EU being the second largest trading partner of the US with exports amounting to about 20 per cent of its total volume or in the neighbourhood of $600 billion. And Trump has always been talking of imported chips, steel, oil and natural gas. “TARIFFS all the way” Trump has said unless EU buys more American oil and gas.

There is simply no way of knowing what Trump has in mind on tariffs; and the same goes for the countries that are going to be on the list. The taxes on foreign goods need not necessarily be confined to trade imbalances but also for political and strategic reasons. Now that many Arab nations have rejected the idea of taking in Palestinians from Gaza into their countries, what will the White House’s response be?

Defence factor

Also, Trump has long complained of America being taken for a ride on matters related to defence spending keeping in mind what Washington spends for being in the North Atlantic Treaty Organisation (NATO) or for maintaining security equations in the Asia Pacific with South Korea and Japan. The concept of “free loading” is very much in the President’s mind even if allies point out that this is misplaced.

India has been on the list of “tremendous tariff makers” and it remains to be seen the extent to which the easing of taxes on motorcycles or the plan to boost the nuclear power sector in the recent Budget is going to a difference.

Chronic deficits cannot be addressed through one time or periodic defence purchases as the buyer will have to carefully weave through the channels of feasibility, technology transfer, theatre operationalisation, ready availability of spares and legislative imperatives, to mention a few.

The writer is a senior journalist who has reported from Washington DC on North America and United Nations

Published on February 3, 2025