By including these provisions in its trade policy, the United States government is taking a courageous step. Now, finally, it is starting to distance itself from this long-standing, harmful approach that treated Value Added Taxes (VATs) as tariffs. This amendment has the danger of opening the floodgates to new tariffs – potentially as high as 10% to 20% on imports. These or similar tariffs would dramatically change American trade and disrupt the entire global trading system.
That’s why the proposed 20% universal tariff—which would be the President’s biggest long-term plays—is such a key battleground in cabinet and White House infighting. They contend that it’s the only way to raise meaningful revenue, enough to total in the trillions. If this plan works, the ripple effect would be monumental. Like the Smoot-Hawley tariffs almost a hundred years ago, it would be capable of doing great damage to global trade.
The negative economic impact of these kind of tariffs would be huge. In fact, analysts predict that worldwide costs could reach as high as $1.4 trillion (£1.1 trillion). Most of this increase is the result of interrupted trade and increased costs. The potential effects on the United Kingdom would be far-reaching. Even if the UK determines not to retaliate, it could still provide significant tax incentives to US tech companies to make sure the special relationship remains hunky dory.
Tariffs are looming, but one group of U.S. businesses operating in Europe could find relief. They would all gain from lower cost imports of electronics, clothing, and toys from their Pacific cousins. Additionally, this influx would increase competition and lower prices for consumers. It doesn’t come close to offsetting the broader economic disruption from tariffs. The Trump administration has decided that globalization hasn’t worked for everyone, reflecting a substantial rethink in trade strategy.
Additionally, the European Union could retaliate by going after U.S. tech companies, setting off a possible tit-for-tat cycle of such actions. Thus far, it seems like the Trump administration is prepared to release a tsunami of ballistic missiles. This proposed move would upend the global trading system as we know it.
Every time the President threatens to impose these tremendous tariffs, it sparks new speculation. It’s no surprise then that many wonder whether these plans will ultimately be delayed or diluted. This time just might be different as he touts tariffs’ crucial role for recasting America’s economic terrain.
“The most beautiful word in the dictionary” – Donald Trump
China is closely monitoring these developments. If the U.S. overplays its hand and alienates its allies, it could create an opening for China to strengthen its position in global trade.