Trump Fumbles Like a Virgin!

The Tamils usually say it is “muthal ratri” (your first wedding night) but Trump already had three of them. And yet he fumbles like a virgin (and that’s not from Madonna!).

Unlike past major financial crises – like the Asian financial crisis, 9-11, the dotcom bubble, the global financial crisis of 2008, and the Covid-19 pandemic – which were either driven by greed or the financial indiscipline of governments, the current Trump tariff crisis is self-inflicted by one man’s agenda. To top it off, just one week after his “Liberation Day”, US President Donald Trump – who had always claimed that he held all the cards – basically folded and backed down.

Source: https://en.wikipedia.org

Nevertheless, as he has now lowered the baseline reciprocal tariffs (RT) to 10% for 90 days for all countries, the RT rate for China is now 145%, in a series of tit-for-tat moves.

President Trump and Elon Musk have both gone on record, following the Liberation Day announcement, that if countries drop their tariffs or cut the rate to zero on US goods, the United States is prepared to do the same. The issue boils down to the formula. For instance, in Malaysia’s case, the US Trade Representation (USTR) report showed that Malaysia’s average most-favoured-nation weighted tariff rate was at 5.6% in 2023. However, Malaysia was slapped with an RT of 24%, more than four times the rate reported by USTR.

Hence, what if Malaysia was kind enough to remove all tariffs on US exported to the country? Assuming zero tariff on US imports and Malaysia is running a trade surplus of let’s say US$18bil on US$50bil worth of exports to the United States, there would still be a 36% “tariff charged to the United States” and we would still be subjected to an 18% RT based on the formula that Trump laid out to the world.

Countries like Singapore and the United Kingdom, both running trade deficits with the United States, were still slapped with a 10% RT! Certainly, even if the rest of the world were to remove all tariff rates and we have zero tariffs across every nation, the United States would still be running a trade deficit.

One of Trump’s proposals is to have goods manufactured in factories across the world, particularly in places like China or Vietnam, relocate to the United States. This ignores the fact that the workers in these sweatshops work for just under US$300 per month in Vietnam and around US$600 per month in China. How would the United States be able to compete when its minimum wage is at least five to 10 times higher than in China and Vietnam? It is just not feasible.

In addition, even if these factories relocate to the United States, they will still need to import raw materials, which would now be subject to the RT. Other than wages, there are a host of other issues related to reshoring to the United States, including finding suitable location, overhead costs, supply chain issues and time constraints. The US consumers are key beneficiaries of the global supply chain, as well as the idea that countries that have the best comparative advantage should produce goods like shoes or gadgets.

In 2024, the United States was China’s largest merchandise export destination and the second-largest source of imports. China’s exports to the United States and imports from that country accounted for 14.7% and 6.3% of China’s total exports of US$3.58 trillion and imports of US$2.58 trillion in 2024, respectively. On the other hand, US exports to China and imports from China accounted for 7% and 13.8% of the total US exports and imports, respectively. The United States is more dependent on China than China is on the United States.

With Trump in power and the tariff issue remaining fluid, most countries will likely take steps to de-risk from overdependence on the United States for trade and seek alternative sources. This could likely see lesser usage of the dollar in international trade.

The recent spike in the 10-year US Treasury yield shows that both Japan and China do have the cards to play with the United States if it continues with unilateral actions in international trade.

If Japan and China exit the US Treasury market, not only would it cause chaos, but the dollar too will suffer as the proceeds would quickly be converted to other currencies. Thus, the dollar’s dominance will erode as nations reduce their dependence on the world’s reserve currency.

Tariffs are essentially taxes on consumers, paid by importers. The notion that America is “charging” 180 nations with RT is not only wrongly communicated but is less understood. These are not a tax on exporters but on importers, who will then pass it onto consumers. American exporters, too, will suffer as input costs are expected to increase, resulting in the United States losing its competitiveness, or whatever that is left of it.

Even before taking office, Trump has been barking on tariffs as a means to raise revenue and replace taxes. Tariffs won’t solve US trade deficit problems, as it does not have the comparative advantage to become the global manufacturing hub. China is likely to emerge stronger from hereon as the true superpower, especially when it comes to economic strength and diversity. China will emerge as the real winner in Trump’s self-inflicted trade war.

What China could do and should do is to forge a trade alliance with India, ASEAN and Europe. But that takes a lot of courage and wisdom by all parties. In any event, the U.S. is left isolated with its tantrums!

Reference:

Trump fumbles self-made crisis, Pankaj C. Kumar, The Star, 12 April 2025