Equality Tariffs: Reconstructing the World Economy

The world is becoming more exciting. On April 2nd, the United States officially began implementing a comprehensive reciprocal tariff policy, significantly increasing tariffs on products from most countries. The international market has already reacted, with stock markets falling and gold prices rising. However, this may just be the prelude to a major global economic shake-up. What are the goals of the United States in increasing tariffs across the board? How will countries around the world respond? What kind of challenges will the global economy face?

Senior media commentator Guo Jun stated in the “Elite Forum” that in terms of the implementation on April 2nd, China may be least affected. This is because President Trump has already substantially raised tariffs on Chinese products, reaching around 40% now. Therefore, if the United States implements comprehensive reciprocal tariffs with an average rate close to 20%, the impact on China might not be too significant.

However, the comprehensive reciprocal tariffs imposed by the United States this time are not a simple measure of tit-for-tat. It is not just about matching the tariffs imposed by one country with tariffs of the same amount. It involves a comprehensive response to tariffs, country subsidies, restrictions on foreign products entering the country, and other measures.

For example, when China imports cars from the United States, the tariff is only 15%, but selling foreign cars in China faces many non-tariff barriers. These include designated selling prices, licenses, etc., which require special government approval. Most joint ventures are closely related to the government. Therefore, buying a regular American car in China will cost much more than the selling price in the U.S., due to non-tariff barriers.

When China joined the World Trade Organization (WTO), there were clauses related to abolishing non-tariff barriers written into the agreement. However, over the past twenty years, China has not fulfilled these promises. This was a fundamental reason for the outbreak of the US-China trade war after 2018. In the future, trade measures against China will be more severe than simple reciprocal tariffs, making it unlikely for China to achieve similar tariff levels.

Guo Jun recalled that in the 1980s, during some interviews, Trump called for issues such as increasing tariffs. He believed that the whole world was taking advantage of Americans because U.S. consumers were supporting the economies of many countries.

We know that the cycle of market economy involves investment, production, and consumption, with each stage being crucial and irreplaceable. But profits from American consumption and production do not flow back into American investment, but go to foreign countries, becoming their investments and productions. As a result, the American economy becomes disconnected. Nevertheless, due to the huge scale of the U.S. economy post-World War II, accounting for around 40% of global GDP, these losses may not be immediately apparent. Even now, with the U.S. GDP of around 29 trillion dollars, with import and export totaling approximately 6 trillion dollars, foreign trade accounts for just over 20% of the U.S. economy, which is still the lowest proportion globally.

However, another crucial metric is the trade deficit. A trade deficit means that American consumers’ spending does not translate into domestic productivity but into foreign productivity.

In 2024, the U.S. trade deficit approached nearly $1 trillion, accounting for 3.2% of GDP, although not the historical peak, it was still quite high. The issue is that the U.S. is no longer the same as it was post-World War II. In 2024, the U.S. accounted for around 26% of global GDP, an increase compared to 2011. However, this rise mainly came from stagnation in Japan and Europe. To maintain its international status, the U.S. needs to not only focus on military power but also on maintaining its absolute economic superiority, especially in manufacturing. Otherwise, future problems could be severe, which is a consensus.

Guo Jun pointed out that there is a globalist ideal among the left, but the right, on the other hand, prioritizes America and the need to maintain the country’s dominance. Therefore, achieving balance in foreign trade is particularly crucial.

Taiwan’s macroeconomics expert Wu Jialong said in the “Elite Forum” that in his view, without a doubt, the imposition of tariffs by the U.S. will have the most significant impact on U.S. revenue.

When talking about tariffs, there are two levels of economic functions. Each has two objectives and effects. The first level is the traditional economic perspective, aimed at reducing the trade deficit and protecting key industries, serving as a tool for protectionism. The second level involves tariffs with two additional economic effects. Firstly, it generates revenue, and secondly, it pressures foreign manufacturing to invest in the U.S., saving tariffs.

Wu Jialong mentioned that Trump now emphasizes these latter two functions, which are not present in economic textbooks. Economics textbooks do not discuss tariffs for gaining revenue or pressuring others to invest; they only touch upon the traditional aspects. Therefore, tariffs were originally an economic tool, not a political one.

Now, there is a third level known as non-economic objectives that involve other political issues. This includes increasing defense expenditure for the European Union, which translates to NATO members increasing their defense budgets. If defense budgets increase, tariffs might decrease, linking defense budgets to tariffs. Another instance is targeting illegal immigration and drugs from Canada and Mexico. If border control improves, tariffs might decrease. This method of connecting tariffs with other issues extends to Venezuela’s energy products, adding secondary tariffs. For example, if China buys energy products from Venezuela, an additional 20% tariff will be applied.

Therefore, there are three levels to consider: the first two are within the economic realm, while the third level involves Trump’s innovative approaches. With the potential results, tariffs as tools can bring positive effects to the U.S. Indeed, the most significant impact will first be felt by the U.S. itself.

Moving forward, the impact will also be significant on three countries: Canada, Mexico, and China. Why? Because these are the top three countries with the highest trade deficits with the U.S. Vietnam might also soon join the list, as many Chinese companies export from Vietnam.

In the past, people believed that viewing tariffs from a political perspective, imposing tariffs, would lead to retaliation, creating more serious global trade issues and eventually shrinking the trade volume drastically, leading to economic depression. Therefore, after World War II, nations came together to establish the General Agreement on Tariffs and Trade (GATT), later evolving into the World Trade Organization (WTO). Therefore, the current situation where the U.S. imposes tariffs on all countries and adds reciprocal tariffs is unprecedented. Present analyses can only say that uncertainties lie ahead.

Wu Jialong stated that the impact of imposing tariffs on Taiwan will be insignificant, or even favorable. Unless it is specifically targeting Taiwan. Firstly, Taiwan is not only about the semiconductor industry, but many traditional industries will also follow TSMC to invest in the U.S. Previously, Taiwan’s surplus capital went west to the Chinese mainland, but now it has shifted to the east, invested in the U.S. Taiwan’s economic ties with the U.S. will deepen, and mutual exchanges will broaden. Secondly, Taiwan will reduce its reliance on mainland China, moving many supply chains out and directly investing more in the U.S. market, which would be positive, and the investment scale should be substantial.

Regarding the impact on China, Wu Jialong emphasized that it would be severe. The additional tariffs targeting China are more intense and distinct from those imposed on other countries. Thus, the tariffs on China would be significantly higher. The average tariff, originally around 20%, increased by 10% in February and March each, reaching 40% now. With the additional secondary tariffs, such as buying oil from Venezuela, another 20% being added, the total tariffs could reach 60%. If purchasing oil from Russia, more tariffs would be imposed. Supporting Iran or Russia could trigger additional tariffs. If this progression continues, China’s tariffs will likely be the highest, bearing the heaviest impact.

In early March, when the U.S. announced the Consumer Price Index (CPI) for February, President Trump had already taken office, causing the rate to drop from 3% to 2.8%. Trump immediately imposed tariffs, averting inflation. The last time Trump imposed tariffs, the Chinese yuan depreciated, from 6.4 to 7.2 yuan per U.S. dollar, a decrease of approximately 12%, mitigating the impact of tariffs. Currently, all countries may choose to devalue their currencies to counterbalance the effects of tariffs. Consequently, the U.S. dollar index is likely to strengthen again. The recent rise in the dollar index mirrors this trend, strengthening from around 103 to 104.

Hence, it appears that the tariff effects are altering globalization, effectively signaling the end of globalization. The World Trade Organization is practically being overridden by the U.S. as it establishes a new international economic order and trade rules. This approach allows the U.S. to circumvent negotiating with every industry or country individually.

If the U.S. implements tariffs, causing a global economic slowdown, this would mainly depend on how other countries respond. Every country, from Europe to Japan, South Korea, Taiwan, and even India, Russia, etc., is navigating these changes without precedents to guide them.

Should retaliatory tariffs ensue, they could trigger further retaliation, potentially duplicating the economic depression of the past, rapidly contracting global trade and deepening the global economic downturn. Throughout March, global stock markets, including U.S. and Taiwan stocks, experienced declines, mainly due to concerns about how tariffs would impact and provoke reactions, resulting in high uncertainties and market instability, prompting selling.

In this situation, the primary concern is not inflation. Even if an adjustment in export prices becomes necessary, it would be a short-term measure. The exception would be if tariffs continue to rise, with the U.S. setting tariffs for other countries in the range of 15% to 20%, except for China, which might face persistently escalating tariffs. If China withstands the pressure and tariffs continue to rise until it becomes unbearable for China, then China’s situation would be severe.

Consequently, the global economic impact moving forward hinges on whether China’s economy contracts, leading to deflation exported to other countries, culminating in a more severe global economic decline.

As a result of the increased investments in the U.S., the American economy is expected to improve. Coupled with the Golden Green Card, it is estimated that approximately one million cards will be sold initially, potentially reaching seven million long-term, at $5 million per person, totaling $35 trillion. Currently, U.S. national debt stands at $36 trillion. Consequently, a significant portion of the accumulated national debt could potentially be alleviated through the Golden Green Card program.

Hence, the tariffs are part of a grand fiscal plan, where tariffs are a trade issue that aims to resolve fiscal problems. Therefore, when the U.S. Treasury Secretary mentioned preventing a financial crisis, stemming from bond crises, this was to manage federal deficits and debt pressures, thereby born the tariffs. Ultimately, the U.S. aims to resolve its fiscal crisis promptly to confront China with fewer burdens.

Guo Jun added that the world economy consists of two significant sectors: physical economy and financial economy. The global financial economy scale is two to three times larger than the physical economy. The U.S. boasts the most advanced financial economy. In 2024, the largest U.S. exports came from financial and financial service sectors, leading to two issues: wealth inequality and the unreliability of the financial economy, which could collapse when faced with crises like war, much like what happened to the UK in the past.

Therefore, the rush to revive manufacturing and the physical economy in the U.S. is essential, requiring support for the U.S. domestic manufacturing and physical economy, prompting Trump’s move to increase tariffs comprehensively.

Guo Jun said that significant changes will undoubtedly occur in the future world. The post-World War II order will evolve into a new phase, rendering previous methods outdated. However, what this new setup will look like and the outcomes it will bring are uncertain and unpredictable. Because of this uncertainty, the impact on the global economy will be immense.

The article “Elite Forum” is a new television program produced by New Tang Dynasty and Dajiyuan, providing a high-level forum for the Chinese community to gather global elite commentators to discuss hot topics, analyze prevailing trends, and offer in-depth observations on current affairs and historical truths for viewers.

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