On ‘liberation day,’ April 2, President Donald Trump announced, to the shock and awe of the world, sweeping reciprocal tariffs on the goods of most countries, bringing to an end, in one fell swoop, the era of free trade, the foremost champion of which was Adam Smith in 1776 in “An Inquiry into the Nature and Causes of the Wealth of Nations.” Tariffs dominated American economic thinking and system throughout the nineteenth century but was abandoned by the major political parties in the early twentieth century after FDR’s political victories. The Trump tariffs were calculated on the basis of an unscientific economic and mathematical formula by which the US deficit with a country was divided by the value of US imports from that country and the number divided in half. For Guyana the figure was 76 percent, and the tariff imposed was 38 percent. It is higher for other countries, for example, Cambodia 49 percent, Laos 48 percent, Vietnam 46 percent and Lesotho 50 percent.
The Wall Street Journal said that Trump was “blowing up the world trading system” and reverting to the old era of “trade protectionism.” The Financial Times referred to it as an act of self-harm, which would “upend the global economic order and tarnish US prosperity.” French President described the tariffs as a “brutal and unfounded decision” that will have a “massive” impact” on the US economy. Ursula von der Leyen, the President of the EU, said the new tax imports will see “uncertainty spiral”, causing dire consequences “for millions of people around the globe.” Tariffs on China started at 20 percent but escalated rapidly as China reciprocated in a tit-for-tat explosion. At present tariffs against China are 145 percent and China’s tariffs on US goods are 125 percent. It is clear that China has no intention of allowing the US to have the upper hand in what is now a trade war between them which, if continued, would be likely to bring trade valued at US$650billion a year to a halt. Substantial harm will be done to both economies and multiple multinationals will tumble.
The unravelling of the US economy by the shock of the tariffs began almost immediately with the disastrous drop in the value of stocks on the stock market. The bleeding continued for days as the stock market lost what Bloomberg estimates to be US$9.5 trillion, then partially recovered as a result of countries allegedly seeking ‘deals.’ But it resumed as bonds were dumped, its prices declined, and its interest rates escalated. This generated fears of higher interest rate on US debt which the US cannot afford because of its already high debt – more than 100 percent of its GDP – and eventual recession. Financial instability across the US economy beckoned. Higher inflation and higher mortgage rates would have been a certainty and may yet result from the bludgeon of the tariffs. A similar situation wrecked the UK Liz Truss government in 49 days in October 2022.
The Bretton Woods Agreement in 1944, underlining the dominance of the US after the Second World War, established the supremacy of the US dollar, the principal goals of which were intended to create stable and efficient foreign exchange and promote international growth. Its instruments were the World Bank and the International Monetary Fund. The “Golden Age” of capitalism and of US dominance of the capitalist world that was created by the Bretton Woods system came to an end during the 1970s as a result of “rising international competition, spiking energy prices, declining productivity and profitability and soaring inflation and unemployment.” (Alexander Reuss “Dollars & Sense”). And so, the Reagan-Thatcher “Washington Consensus” emerged, giving rise to neoliberalism.
This ideology of neoliberalism to arrest the decline of capitalism involved market-oriented reform policies such as the elimination of price controls and subsidies, reducing government spending, retrenchment of employees, privatization, austerity, wage and salary freeze, de-emphasizing trade unionism and eliminating barriers to free trade. The World Bank and IMF were the shock troops that imposed these conditionalities the world over. International capitalism had a breadth of life but at the expense of working people. The strengthening of capitalism and the weakening of workers’ organizations and rights resulted in a stagnation of wages, salaries and working conditions generally and in the US since the 1970s. It is alleged that today sixty percent of US families live from paycheck to paycheck.
Although capitalism temporarily shed its stagnation after the 1970s, the periodic crises, of varying length and depth, which are endemic to the capitalist system every five to seven years, continued. And although the US economy, emerging out of an inflationary cycle just recently, is in a period of resurgence for the moment, President Trump probably sees tariffs as the remedy for its long-term decline which he attributes to the US being ‘victimized’ by China and the rest of the world. He also sees a transfer of wealth from ordinary working Americans to the wealthy by way of reducing spending through DOGE, reducing benefits of Medicare, reducing taxes for the wealthy and increasing income from tariffs as integral parts of the recovery plan. So, it’s not tariffs only. It’s the bundle of policies, advanced by President Trump, in rhetorical flourishes which define his distinct persona.