Huge gamble

After shocking the world with an announcement of reciprocal tariffs on many of its trading partners, including the Philippines, US President Donald Trump had a change of heart and announced that he was postponing for 90 days the imposition of hefty reciprocal duties on exports of a number of countries into America.

A 10 percent blanket duty on almost all US imports will, however, remain in effect. The reversal is also seen as not affecting the raised duties on automobiles, steel and aluminum that are already in place.

The 90-day halt also does not apply to Canada and Mexico since their goods are still subject to 25 percent fentanyl-related tariffs, as well as in the case of China where the tariffs were raised further from the already escalated 104 percent to 125 percent. While the more than 75 trading partners of the US did not retaliate and have reached out, China countered with an 84 percent tariff hike.

According to US Treasury Secretary Scott Bessent, this was Trump’s plan all along, to use tariffs to create maximum negotiating leverage and to goad China into a bad position.

A Reuters report described the situation after his April 2 announcement of reciprocal tariffs as the most intense episode of financial market volatility since the early days of the COVID-19 pandemic, with trillions of dollars from stock markets being erased and US government bond yields experiencing an unsettling surge that appeared to catch Trump’s attention.

The White House said that going big on tariffs and then hitting the pause button before entering negotiations with individual countries was the plan all along, BBC reported. Bessent said that more than 75 countries have already reached out.

So was it really a calculated plan all along by the Trump administration?

One US analyst said that Trump caved in the face of alarming disruptions in the huge market for US Treasury bonds, which the American government uses to finance itself. And in the end, the markets forced Trump to announce a timeout, but a lot of damage has already been done on 401(k) retirement plans, business planning, consumer confidence, and faith in the US government, none of which will be repaired easily or quickly, he added.

With US stocks tumbling, this got many Americans worried about their retirement accounts. BBC explained that about 60 percent of Americans have stock market investments, either directly or through retirement accounts. These 401(k) retirement accounts, named after a subclause of tax law, offer an easy tax-free way to save. About 35 percent of working Americans choose to invest a portion of their paychecks into 401(k) retirement accounts.

Last April 2, Trump explained that large and persistent annual US goods trade deficits have led to the hollowing out of their manufacturing base and that these deficits are caused in substantial part by a lack of reciprocity in bilateral trade relationships. He said that the disparate tariff rates and non-tariff barriers imposed by other countries make it harder for US manufacturers to sell their products in foreign markets.

He noted that from 1997 to 2024, the US lost around five million manufacturing jobs and experienced one of the largest drops in manufacturing employment in history.

Trump declared a national emergency arising from conditions reflected in large and persistent annual US goods trade deficits, which have grown by over 40 percent in the past five years alone, reaching $1.2 trillion in 2024.

To rebalance global trade flows, he announced the imposition of additional ad valorem duties on all imports from all trading partners, which shall start at 10 percent, with additional duties on a number of countries effective April 5, 2024.

For most countries, the additional duties imposed were in fact half of what they should be. In the case of the Philippines, for instance, while it imposes a 35 percent tariff rate on imports from the US, Trump imposed a 17 percent rate instead.

Among the countries with severe adjusted reciprocal duties are Cambodia at 49 percent, Laos at 48 percent, Vietnam at 46 percent, Myanmar and Sri Lanka at 44 percent and Bangladesh at 37 percent. Tariffs on Chinese exports into the US jumped to 104 percent with the 84 percent reciprocal duties combined with previously announced duties of 20 percent.

It was clear that Asian nations were supposed to face the worst of the brunt, CBSNews noted.

But there was no way to make sure that jobs would come to America once the reciprocal duties were imposed. Foreign businesses whose countries will be subjected to the raised tariffs will just have to decide which will be more economical – absorbing the additional cost or passing it on to their customers, which could have the effect of making their products more expensive and therefore not competitive, or transferring their manufacturing facilities to the US.

After all, there was a good reason why these goods are not manufactured in the US, which is said to be one of the most expensive places on Earth to manufacture products. Labor costs in countries like China and Mexico are just a fraction of those in the US.

Even if American shoppers may be able to buy more goods made in the USA, they may have to pay more for them.

It is also said that structural costs, including corporate tax rates, employee benefits, tort litigation, regulatory compliance and energy, are eating away at the ability of US manufacturers to compete effectively in the global marketplace, according to IndustryWeek.

Is it possible that Trump and his economic and trade advisers were not able to take these into consideration before announcing the increased tariffs? Everything is speculative at this point, although I tend to believe that it was all planned to force countries into the negotiating table.

But what about the negative impact on the lives of ordinary American citizens? And the continuing uncertainty that has made the world adopt a wait-and-see attitude before dealing with the US? This, the Trump administration might have undermined.

If the announcement was only made to scare China, then it should have targeted only China from the beginning. If the announcement was only meant to remind the whole world that the US is still the most powerful country in the world, it might not be worth all the negative effects associated with it.

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