It had the hallmarks of a reality TV cliffhanger. Until recently, many people had never even heard of tariffs. Now, there’s been rolling live international coverage of so-called “Liberation Day”, as US President Donald Trump laid out tariffs to be imposed on countries around the world.
Just hours ago [On April 2], Trump announced all imports to the United States will be subject to a new “baseline” 10 percent tariff. This is an additional tax charged by US Customs and Border Protection when products cross the border.
The baseline tariff is expected to take effect from April 5, and then higher reciprocal tariffs on individual countries from April 9. That leaves no time for businesses to adjust their supply chains.
What might the next “episode” hold for the rest of the world? We can expect many countries to retaliate, bringing in tariffs and trade penalties of their own. That comes with risks.
US President Donald Trump’s sweeping imposition of new taxes on imports to the US will not only result in retaliation, it will hurt everyone, including US online shoppers
Tariffs on the whole world
Vietnam will be among the hardest hit by reciprocal measures, with a 46 percent tariff. China, South Korea and Japan will also feel the brunt of the newest announcement — all subject to new tariffs of between 24 percent and 34 percent. The European Union is subject to 20 percent.
Many countries had already vowed to retaliate.
In a recent speech, the president of the European Commission, Ursula von der Leyen, said “all instruments are on the table.” She also stressed that the single market is the “safe harbour” for EU members.
Canada was apparently spared from the baseline 10 percent tariff. But it still has to contend with previously announced 25 percent tariffs on the automotive and other sectors.
Canada’s new prime minister, Mark Carney, has said “nothing is off the table” in terms of retaliation.
Major tariffs on Asia
The 34 percent new tariff on China will be on top of the 20 percent tariff previously imposed, bringing the total to 54 percent.
That’s a further aggravation to already fractious relations between the world’s two largest economies.
Vietnam is especially reliant on the US market, and has been trying to negotiate its way through tariff threats. This has included unprecedented agreements to accept deported Vietnamese citizens from the US.
Until this point, Vietnam had benefitted from tensions between the US and China. These new enormous tariffs will have large ripple effects through not only Vietnam, but also less economically developed Cambodia (49 percent tariff) and Myanmar (44 percent tariff).
Is it worth fighting back?
Vulnerable countries may not have the leverage to fight back. It is hard to imagine what leverage Cambodia or Myanmar could have against the US, given the disparity in resources.
Other countries consider it is not worth the fight. For example, Australia is rightly questioning whether a tit-for-tat strategy is effective, or will it just ramp up the problem further.
One country that has flown under the radar is Russia. Two-way trade with Russia is small and subject to sanctions. But US media have reported Trump would like to expand the trading relationship in the future.
A nightmare for the US Postal Service
One of the interesting side effects of Trump’s announcements relates to what trade experts call the “de minimis” rule: usually, if you make a small purchase online, you don’t pay import taxes when the item arrives in your country.
Trump closed this loophole in February. Now, US tariffs apply to everything, even if below the “de minimis” amount of $800.
This won’t just be a nightmare for online shoppers. Some 100,000 small parcels arrive in the US every hour. Tariffs will now have to be calculated on each package and in coordination with US Customs and Border Protection.
Boycotts and retaliation
We can also expect consumer backlash to increase worldwide too. Canada’s “elbows up” movement is one template.
Consumers around the world are already choosing to redirect their spending away from US products, expressing their anger at the Trump administration’s stance on trade, diversity equity and inclusion (DEI) policies, environmental protection, gender rights and more.
Consumers should be careful about jumping on the bandwagon without doing their homework, though. Boycotting a US fast food outlet might make you feel better (and frankly may be better for your health), but that’s also going to impact the local franchise owner.
Hating Americans en masse is also not productive — many US citizens are themselves deeply upset at what is happening.
Claiming victory while consumers pay more
Watch out for the impending claim of victory — one of Trump’s mantras popularised in the recent movie, The Apprentice.
The US trade deficit rocketed after Trump’s previous tariff announcements this year, as importers scrambled to stockpile supplies before price increases.
This cannot happen this time, because the tariffs come into effect in just three days.
In the short term, the monthly trade deficit will decline if imports return to normal, which will give Trump a chance to claim the policies are working — even if it’s just a rebound effect.
But these tariffs will harm rather than help ordinary Americans. Everyday purchases like clothes (made in places like Vietnam, Cambodia and China) could soon cost a lot more than they used to — with a $20 t-shirt going up to nearly $30, not including US sales taxes.
As this reality TV-style trade drama continues to unfold, the world should prepare for more episodes, more cliffhangers and more uncertainty.
The writer is Professor of Law at the University of New South Wales in Sydney, Australia
Republished from The Conversation
Published in Dawn, EOS, April 6th, 2025
Rethinking the Indian Response to Trump’s Tariff War
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Image Courtesy: Flickr
The conspicuous silence in Indian mainstream media and policy discourse on viable responses to Trump’s tariff war reveals deeper dynamics of India’s position within the international political economy. Despite the far-reaching implications of the U.S. administration’s protectionist measures, there has been little substantive debate on potential retaliatory options available to India. This stands in stark contrast to China’s assertive and multi-pronged response, which has included reciprocal tariffs, export controls, formal complaints lodged with the World Trade Organisation, and targeted investigations into American firms operating within its territory. The divergence in response between the two countries offers critical insights into the ideological, institutional, and geopolitical constraints that shape India’s engagement with global economic power structures.
The Indian government’s response to Trump’s tariff war has been, at best, muted. A recent meeting between the U.S. President and the Indian Prime Minister epitomised this submissiveness. Even as the U.S. government was forcibly deporting Indian nationals; shackled, blindfolded, and transported in military aircraft in a manner starkly violative of human dignity. The Indian government chose denial over protest, publicly insisting that the deportees had not been ill-treated. Further, when Ananda Vikatan, a Tamil-language magazine, published a satirical cartoon critiquing the government’s silence on these humiliations, it was summarily censored under India’s draconian information technology legislation.
Such episodes highlight a broader incapacity to mount even a symbolic defence of Indian sovereignty when affronts originate from hegemonic global powers like the United States. This inability to respond meaningfully to external provocations, whether on trade, diplomacy, or the treatment of Indian citizens, raises important questions about the ideological and structural orientation of the Indian state.
Two interrelated factors underlie this posture of passivity. First, India’s ruling classes and their political apparatus remain deeply beholden to international finance capital, which is largely centred in the United States. Second, this dependency is compounded by a fundamental misreading of contemporary global political economy. These material realities are expressed ideologically through two distinct, yet convergent, wings of India’s neoliberal project: the neo-fascists and the cosmopolitan neoliberals. While the former deploy a pseudo-nationalist rhetoric and the latter a pseudo-internationalist one, both ultimately converge in their reluctance to challenge U.S. imperialist hegemony. Their divergence lies only in the rhetorical justifications they offer for this subservience. These arguments merit closer scrutiny.
One strand of cosmopolitan neoliberal thought argues, somewhat brazenly, that Trump’s tariff war offers India an opportunity to unilaterally reduce its own tariffs. They claim that such a reduction would boost domestic competition and thereby improve economic efficiency. However, this argument is logically inconsistent: if lowering tariffs unconditionally leads to better outcomes, why does the U.S., the world’s most powerful economy, choose to increase them?
Other cosmopolitan neoliberals argue that India is a small open economy while the US is a large open economy, implying that world prices are given as far as the Indian economy is concerned while the US is capable of at least partially influencing world prices. Therefore, it would be unwise for India to engage in retaliation vis-à-vis the the imposition of tariffs by the US. On the face of it, this argument seems somewhat logical and therefore let us examine this further. While it is true that the Indian economy is smaller than the U.S. economy in terms of share of world income, for a number of commodities that India does import and export, the respective share of India's imports and exports in the total world trade is non-negligible. Therefore, the ability of India to partially determine the pricing of its imports and exports can be an element in its trade policy including tariff retaliation.
Moreover, the very structure of Trump's tariff war, which involves differential tariffs on different countries, is a tactic designed to try and prevent coordinated opposition to Trump's trade policy. Therefore, it would be relevant for India to work in multilateral forums such as the BRICS to prepare strong and coordinated responses to Trump's tariff war. However, whenever there emerges a debate around working in multilateral forums such as BRICS to counter Trump's tariff force, both cosmopolitan neoliberals as well as the neo-fascists might immediately argue that BRICS is dominated by China and that the interests of China and India diverge. Therefore, joint action against US hegemonic actions such as Trump's trade war is not possible. However, this is a self-defeating argument and actually amounts to creating non-tariff barriers in the trade between China and India which weakens India's bargaining power with respect to US imperialist hegemony.
For example, cosmopolitan neoliberals as well as neo-fascists often claim that software semiconductor chips made in China could be hacked by the Chinese government and therefore would be inappropriate for use in the Indian economy. Let us assume for the sake of argument that this claim is true. Is there any reason to claim, on the contrary, that semiconductor chips that are designed or produced using US technology cannot be or will not be hacked by the US government? After Edward Snowden's revelations even those working outside governments know the facts about global surveillance by the US government. Under these circumstances, a prudent option available to India would to diversify its chip demand between two or more sources so that no one foreign government can exercise undue leverage in matters of security vis-à-vis India. While this would be the short-run course that would be appropriate in the case of countries like India, over the long run, efforts should be made to develop an indigenous semiconductor industry.
Another common claim by both ideological segments of the Indian neoliberal project is that U.S. tariffs on Chinese goods provide Indian industry with a relative advantage, potentially encouraging multinational corporations to shift production from China to India. However, this argument too is completely disconnected from the concrete situation concerning global production networks. China exercises a leading position in almost all reaches of the technological ladder that pertains to global production networks due to its advantages in infrastructure, skilled labour with respect to wages, domestic demand, the role of the public sector, state support to innovation, and industrial policy (which involves among other things a euthanising of finance capital and the political neutering of enterprise capital). Most of these conditions are incompatible with contemporary Indian political economy and therefore cannot be replicated here without relevant political changes. Therefore, multinational corporations are unlikely to significantly relocate production capacity to India due to Trump's trade war.
Moreover, any process of industrialisation in any country of the world would require for its continuance some Chinese inputs and/or some access to Chinese markets to be sustainable. Under these circumstances, the question before any country, including India, is not whether to engage or disengage from China, but how best to engage with China. The Economic Survey of 2023-2024 had pointed out that India should explore the option of involving itself in global production networks centered in China. However, progress in this respect has been slow and expectedly subject to counter-pressures from cosmopolitan neoliberals as well as sections of the neo-fascist dispensation in India.
Vietnam offers a valuable lesson in strategic diplomacy. Its ability to maintain productive relationships with multiple great powers, without being beholden to any, demonstrates an autonomous balancing strategy. For India, the path to greater sovereignty lies in rejecting the binary of alignment with either the U.S. or China, and instead adopting a policy framework driven by authentic national interests (which is centred around the working people). In order to understand this proposition, let us examine the actual leverage that foreign countries exercise over India.
The fundamental leverage that U.S. monopoly capital exercises over India is through the hegemony of international finance capital that is centered in the U.S. Since India does not have effective capital controls, this allows U.S. monopoly capital to exercise effective power over Indian policymaking. One exception to this trend was when the Biden administration tried to pressure Indian government to cut relations with Russia. The Indian government could not accede to this US demand because the Chinese-Russian strategic concord that would have emerged may have been directed against India. This strategic concord could not have been counterbalanced by the strategic proximity that may have emerged between India and the USA. But in most other matters, the U.S. monopoly capital has been able to influence, to a very significant extent, the contours of policymaking in India. Consider, for instance the examples of India's relations with Iran, with Venezuela, on the question of the conflict in Palestine, and so on. The contrast with US attempts to exercise similar leverage over China or Russia is readily evident.
In the absence of effective capital controls, international finance capital, primarily centred in the United States, continues to serve as a conduit through which U.S. monopoly capital exercises considerable influence over Indian economic policymaking. This structural dependence finds its ideological expression in the distinct yet convergent narratives of cosmopolitan neoliberals and the neo-fascist dispensation.
On the one hand, neo-fascists have intensified a differential squeeze on the socially oppressed (such as Indian Muslims) under the guise of cultural nationalism and security. This project is part of a broader attempt to erase what remains of India’s anti-imperialist legacy from the freedom struggle. On the other hand, cosmopolitan neoliberals, while cloaked in liberal internationalism, contribute to the same erasure by sanitising colonial history and glorifying imperialist globalisation. Though their methods differ, both ideological strands ultimately function to sustain the hegemony of metropolitan capital.
At the core of any meaningful anti-imperialist position lies the understanding that broad-based economic progress in the Global South is not possible without directly confronting the hegemony of metropolitan capital. The recent efforts of U.S. monopoly capital and its state apparatus to drive a wedge between China and Russia is a tactic aimed at forestalling the emergence of a multipolar economic order indicating the waning strength of U.S. imperialist dominance. Against this backdrop, restoring policy autonomy for India must begin with the imposition of robust capital controls on international finance. Once this critical step is taken, several policy options become viable to counter the effects of Trump’s tariff war:
One, India must reduce its excessive reliance on the U.S. market for specific commodity exports. While the U.S. may currently offer higher returns for certain export goods, this concentration increases India’s vulnerability to external leverage. A geographically diversified export strategy will enhance India’s bargaining position across all markets. Such a strategic reorientation, especially one that considers long-term national interest is best undertaken through initiatives involving the public sector, which operates with a longer policy horizon than private actors driven by short-term profitability.
Two, India should actively attract greenfield foreign direct investment (FDI), from both the U.S. and China, in carefully selected sectors and regions. These choices must be guided by a coherent industrial policy aimed at enabling India to appropriately ascend the technological ladder of global production networks while not compromising the objective of full employment. Simultaneously, this policy should aim to reduce regional disparities within India by dispersing industrial development beyond existing hubs.
Three, Resist Pressure to Reduce Import Tariffs, Especially in Agriculture and Key Inputs as succumbing to U.S. demands for reducing import tariffs, particularly on agricultural products would further pauperise India’s already vulnerable peasantry and agricultural labour force. A related argument advanced by cosmopolitan neoliberals claims that high-priced inputs supplied by large domestic firms disadvantage micro, small, and medium enterprises (MSMEs), and that reducing import tariffs would level the playing field and boost MSME exports. However, such logic is deeply flawed. Lowering tariffs on critical inputs may indeed reduce costs for MSMEs in the short run, but it is likely to trigger an import surge that undermines domestic production, employment, profits, and investment in import-competing sectors.
In the current global environment, where export prospects are weakening this would have contractionary effects across the economy. Furthermore, once domestic competitors are displaced, foreign suppliers may increase input prices, thereby nullifying any temporary advantage gained by MSMEs. The structural disadvantage faced by Indian MSMEs in relation to monopoly capital cannot be addressed by import liberalisation. Instead, it demands active policy intervention that redistributes resources away from monopoly capital towards MSMEs. This may include public sector production of essential inputs at regulated prices to mitigate cost pressures faced by MSMEs.
Reviving the Anti-Imperialist Legacy
The ideological currents that dominate Indian policy discourse, be they cosmopolitan neoliberals or neo-fascists, seek to suppress the anti-imperialist ethos that once animated India’s freedom movement. The former sanitise colonial history; the latter attack marginalised communities within the country. Both ultimately serve the interests of metropolitan capital. Genuine anti-imperialism today must recognise that sustainable development in the Global South requires breaking free from the grip of metropolitan capital. The growing strategic anxieties of U.S. monopoly capital, exemplified by attempts to isolate China and Russia signal a waning imperialist order. For India, this moment demands bold and thoughtful policy shifts aimed at recovering national sovereignty, economic justice, and strategic autonomy.
Shirin Akhter is Associate Professor at Zakir Husain Delhi College, University of Delhi. C Saratchand is Professor, Department of Economics, Satyawati College, University of Delhi. The views are personal.
The day of the tariffs
Watching the Trump tariffs roll in while our own prime minister congratulated himself, his team and the power of prayer for being able to pass through a power tariff cut inspired zero confidence.
It was a strange spectacle. On the day the rest of the world was busy processing the meaning and impact of the trade tariffs announced by US President Donald Trump against almost 60 countries including Pakistan, Prime Minister Shehbaz Sharif had tariffs of his own to announce to his countrymen.
In a live televised show with ample pomp and ceremony, flanked by his cabinet and before an audience of his ministers and senior bureaucrats, Prime Minister Shehbaz Sharif took to the podium to announce a reduction in power tariffs equal to Rs7.41 per unit for all households, and Rs7.59 for industry.
These are figures for average reductions across various consumer categories and different slabs. The exact impact on household bills will vary, but for someone who consumes 1,000 units per month, the impact could be somewhere around Rs7,500.
During his speech, the prime minister laboured the point that the cuts have been approved by the IMF, telling his audience how the combined efforts of the cabinet had been marshalled up in order to make these cuts possible. But a closer look revealed something different. What the government has actually done is assemble together a raft of price adjustments that have just been made under various heads, and packaged them together as some sort of a government mandated tariff relief for the country.
The math behind the cuts
A senior source with knowledge of how these cuts are going to be financed gave Dawn.com the breakdown. According to the source, Rs1.70 of the total tariff cut will be financed with funds raised from not reducing fuel prices at the pump due to recent oil price declines, and absorbing that fuel price cut into the Petroleum Development Levy (PDL) instead. Another Rs1.90 is from the quarterly tariff adjustment for the second quarter of FY25, that the power regulator (Nepra) has already approved and will be notified any day now. Another Rs0.90 cut has already been ordered by Nepra under Fuel Cost Adjustment, a routine matter. And Rs1.45 per unit will be financed from the funds saved from the tariff reduction via revisiting IPP agreements. After these reductions, the government estimates a reduced tax incidence on power bills which will contribute the remainder of the estimated cut adding up to Rs7.41 for households of Rs7.59 for industry.
The source confirmed to Dawn.com that the IMF has been informed of this cut before Eid, but added that, to his knowledge, the Fund had merely received the information and not given a response so far. “These are all routine, regulatory adjustments in power tariffs; they do not require prior IMF acceptance, and the government told them that it will be packaging all of these together for political mileage and making an announcement,” the source said. “We do not think there will be any reason for the Fund to object”.
A global shakeup
And so while in Pakistan, we were busy processing a cut in power tariffs and its possible impact on the ongoing IMF programme, the rest of the world was reeling from tariffs of an altogether different variety.
President Donald Trump had already announced a raft of tariffs on trade with America’s bilateral partners, in which products from Pakistan have been slapped with an additional 29 per cent tariff. Pakistan ran a $3.567 billion trade surplus with the US last fiscal year, second in size only to the European Union. The size of the tariff increase is large and it will undoubtedly impact Pakistan’s external trade adversely, though it can be debated how large the impact will be given all competitor countries have been slapped with similar, and in some cases, larger tariffs as well.
The important thing is how rapidly and profoundly the world is changing around us. Trump’s tariffs are similar to the Smoot Hawley Tariff that were signed into law by President Hoover in June 1930, which broke the world economy and aggravated the Great Depression. With these tariffs, the age of globalisation has ended definitively and along with it, also the near total hegemony of neoliberal thinking in economic affairs. There were a number of preparatory crises that paved the way to this pass — the Great Financial Crisis of 2008, the Euro Crisis and the default of Greece, as well as the first trade war between the United States and China during Trump’s first term — but with these tariffs, the era of the single world market ends once and for all.
How Trump’s tariff’s impact Pakistan’s exports is difficult to determine. Tariffs for countries that compete with Pakistan’s textile exports are higher still, so there will be some benefit from there. But the tariffs will also fuel inflation in America, perhaps even pushing that economy into recession, leaving their consumers worse off and hurting demand for Pakistani exports.
Short-sighted policies
But even as the world reeled from this announcement, and leaders everywhere rushed to reckon with the fallout and fashion their strategy for the new world opening before us, we in Pakistan were treated to a show that revealed a leadership mired in ceremony and day-to-day troubleshooting.
The power tariff reductions were coming anyway, since almost two-thirds of the reduction announced is to be financed through regulatory actions, most of which are routine in nature. What mattered more than the tariff reductions themselves, was the vision for change the government was bringing to the power sector, and here the prime minister had little more to offer beyond a committee and a list of names of people who would sit on that committee.
This committee, he announced, will deliberate reduction in power losses, a move towards market pricing of electricity and privatisation of the distribution companies. It seemed odd that the government’s conversation around these foundational issues was still at the deliberative stage, but tariff cuts merited such extravagant pomp and show.
The prime minister is likely to find that any expressions of jubilation from the business community are going to be short lived. Soon the usual complaints of how difficult exports have become in this new world will return with a vengeance, and with it demands for more government support.
If Pakistan’s policy elites remain stuck in concerns about how to troubleshoot day-to-day problems, how to scramble together a “relief package” for industry or the common citizenry, and how to pass the next IMF review with no thought on what comes after stabilisation, the country will hover in a state of low growth for years to come.
The only way out of this low growth equilibrium will be to arrange a foreign bailout of the sort we availed in the middle 2000s and again in the middle 2010s and for a brief period in the years following the Covid-19 pandemic.
Watching the Trump tariffs roll in while our own prime minister congratulated himself, his team and the power of prayer for being able to pass through a power tariff cut inspired zero confidence that anyone among our policy elite understands the scale of the task before them.
Header image created with Generative AI
The Strategic Myopia of Trump’s Trade War
The so-called Liberation Day tariffs imposed by US President Donald Trump ostensibly aim to reduce the US trade deficit and revive manufacturing in the economy. However, these measures reflect a fundamental misunderstanding of the international political economy and the United States’ position within it. Let us examine why.
To begin with, the US government has imposed a 10% tariff on all imports, alongside higher tariffs on specific countries, purportedly to reduce its trade deficit with them. The ideological transmission of this tariff war is furthered by the usage of the phrase “reciprocal tariffs” whereby the US is ostensibly responding to tariffs on the part of other countries. But this is unlikely to have much purchase at present.
However, given the concrete array of forces in the contemporary international political economy, the differential tariff war seems to be effectively a tactic to prevent the emergence of a multilateral opposition. Instead, the Trump administration seeks to induce other countries, especially those on whom relatively low tariff rates have been imposed, to engage in bilateral negotiations, which it is hoped will weaken any multilateral opposition.
Therefore, it is not surprising that the US Treasury Secretary has disingenuously argued that other countries should refrain from retaliating against these tariffs, warning that retaliation would provoke further escalation from the Trump administration.
What makes this tariff war even more questionable is the fabricated methodology used to calculate these so-called “tariff rates.” Interestingly, these figures were not derived from actual data on tariff and non-tariff barriers. Instead, the Trump administration simply divided the US trade deficit with each country by the value of that country’s exports to the US, producing inflated and misleading numbers.
This approach gave the impression that countries like South Korea and the European Union (EU) were imposing tariffs of 50% or more on US exports—despite existing trade agreements that clearly contradict such claims. These misleading figures were then used to justify the imposition of punitive tariffs, further demonstrating the rhetorical rather than empirical basis of the administration’s strategy.
Assuming other countries do not retaliate initially, how are these tariffs expected to function? Basic political economy reasoning suggests that tariffs raise the price of imported goods in the US, incentivising domestic producers who were previously unable to compete with foreign rivals to initiate or expand production of these commodities.
Yet this expectation is flawed for several reasons.
First, the assumption that US firms can produce goods at competitive prices post-tariffs, relies on dubious premises. The US imports numerous production inputs, and tariffs on these inputs will raise domestic production costs. Consequently, the ability of US firms to achieve profit rates deemed sufficient to justify new or expanded production may not improve. Instead, domestic firms may exploit higher import prices by raising their own prices, boosting profit margins but reducing the wage share in the economy. The resultant decline in capacity utilisation could offset any positive impact that higher profit margins may have on private domestic investment.
Second, tariffs elevate the domestic price level. With wages stagnant, the wage share would fall, further depressing capacity utilisation and private investment. Private investment tends to depend on two principal factors: (1) capacity utilisation and (2) the gap between the profit rate and the financial rate of return. A higher price level could prompt the US Federal Reserve to raise interest rates, increasing borrowing costs for firms and raising the floor for financial returns. Both effects would discourage private investment.
Third, US production is deeply integrated with supply chains in Canada and Mexico. Tariffs on these nations would raise costs for US firms, explaining why the current “Liberation Day” tariffs largely exempt them. Notably, the US Senate recently voted to reverse Trump’s tariffs on Canada, with support from four Republican senators.
Fourth, any attempt to use tariff revenue to extend or enhance corporate tax cuts for a given level of the budget deficit in the US will involve a regressive redistribution of income from the working people to monopoly capital in the US. This will have an adverse impact on aggregate consumption and, therefore, on capacity utilisation and private investment.
Retaliation by other countries poses additional risks. Anticipating US tariffs, many nations have prepared retaliatory measures. Such retaliation would reduce US exports, negating any import declines caused by Trump’s tariffs. Moreover, tariffs on imported inputs into the US economy would further reduce the competitiveness of US exports. The net effect on the US trade deficit might thus be negligible or even adverse. Countries with near-monopoly control over certain exports could even impose export duties on goods bound for the US.
Broader implications include threats to the US dollar’s reserve currency status. Reduced use of the dollar in trade (due to tariffs) could undermine its role as a store of value. This is likely to be the case, since the store-of-value role of money and the medium-of-exchange role of money are two sides of the same coin.
Moreover, global production networks may reorganise to further marginalise the US. China’s expanding exports to Global South countries and emerging global production networks, excluding the US, exemplify this trend. Coordination among China, South Korea, and Japan in responding to Trump’s tariffs likely signals a shift toward such an alternative.
Underlying causes of US manufacturing decline stem from neoliberalism’s dual focus on domestic labour precarity (through a differential squeeze on working people) and global production relocation (in activities at the lower and lower-middle reaches of the technological ladder within global production networks), particularly to China and countries in its neighbourhood. China has comprehensively ascended the technological ladder within global production networks, surpassing the US in innovation and emerging as at least a peer rival in invention.
Financialisation, driven by US-centric international finance, exacerbated manufacturing’s decline, enriching US monopoly capital while differentially squeezing working people. The gargantuan levels of profiteering by US monopoly capital in private health and private education involve wages for skilled workers capable of coping with this profiteering too high to ensure an adequate rate of return for enterprise capital in the US.
Infrastructure gaps, wage share disparities, and demand patterns between the US and China have further disadvantaged domestic production. The demolition job by Elon Musk’s DOGE (Department of Government Efficiency), bent on dismantling what is left of the social wage in the US, will further adversely impact efforts to revive US manufacturing.
The Trump administration’s expectation of a manufacturing revival presumes that domestic returns on enterprise will exceed those in finance globally for at least some segments of US monopoly capital. However, measures to boost enterprise returns (e.g., tariffs) simultaneously elevate financial returns via higher interest rates that an inflation-targeting central bank must adhere to. Eschewing inflation targeting by the US Federal Reserve will accelerate the undermining of the dollar’s reserve currency status.
The Trump administration hopes to resolve this conundrum through a Mar-a-Lago Accords, which it envisions as a repeat of the 1980s Plaza Accords, where German and Japanese enterprises were short-circuited by currency appreciation to reduce the US current account deficit without undermining the dollar’s attractiveness as a principal medium of wealth-holding for international finance. However, unlike Germany and Japan in the 1980s, China exercises effective strategic autonomy, ruling out a repeat of the Plaza Accords.
Therefore, Trump’s ‘Liberation Day’ tariff war will fail to spur the anticipated resurgence in US manufacturing. It is more likely to accelerate the ongoing relative decline of the US.
Shirin Akhter is Associate Professor at Zakir Husain Delhi College, University of Delhi. C Saratchand is Professor, Department of Economics, Satyawati College, University of Delhi. The views are personal.
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