EDITORIAL: Eye of tariffs
UNITED States President Donald Trump shocked the international community recently when he announced that American tariffs will be placed on steel and alumina imports into that country. The announcement hinted about a possible trade war that could emerge once US trading partners affected by the tariffs retaliate likewise with tariffs on American exports of the two sets of goods.
Four days ago Mr. Trump carried through his plan when according to press reports out of Washington D.C. he signed into law the tariffs on the goods he had identified for action. In doing that the President, the reports said, exempted Canada and Mexico the two US trading partners in the North American Free Trade Agreement (NAFTA), and hold out hope for a similar action with Australia. However, Europe will be affected.
In a nutshell, a tariff is a tax placed on imports. Its effect is to raise the internal domestic price of the imported good/service. The increase in the domestic price reduces the volume imported, thereby shielding a country’s domestic industries from foreign competition. Apart from a tariff countries can also go the route of non-tariff barriers that do the same thing as the tariff.
Non-tariff barriers include quantitative restrictions of the level of imports, delays in certifying imports, import quotas, licenses on imports and other similar measures that affect the exports of other countries. American trading partners including the European Union (EU) countries, China, other states in Asia and Latin America, the International Monetary Fund (IMF) and similar institutions have called on the American officials not to go through with the measure. Except possibly, Trinidad and Tobago which exports similar goods, it is not known how the pending action will affect this region. However, tariffs on steel may not be the only action as Mr. Trump could find it fit to extend the category of products for similar action.
It is rather unfortunate that in the international trading arena where the World Trade Organization (WTO) has been pushing for global trade to be free and fair, that this development can surface at this time.
The WTO, which holds regular meetings, including Ministerials every two years, have been trying to bring order to international trade by way of mandating the elimination of tariffs. The main players in the WTO are the same United States, Europe, Japan, Australia, China, Canada, and emerging powers like Brazil, Mexico, and several others with identical clout.
The WTO has failed to make lasting headway since those countries mentioned have failed to agree on the way forward. Yet they have impressed upon the smaller countries – CARICOM, Africa, some in Asia and the Pacific – to lower their trading barriers so that their goods can enter these smaller countries while keeping their markets open. To a large extent this has been done. They have lowered their tariffs, cut out trade taxes, devalued their currency in the hope that their exports would be cheaper. Tariffs result in protection to industries in the countries where tariffs are levied, higher prices to consumers in the importing countries and damage to some economic sectors.
The Caribbean has to keep up about what is taking place. There is an old saying that “cockroaches should stay away from fowl cock parties for fear of being crushed.” We must be vigilant to these happenings.