Trump Pauses Tariffs, Targets China in Trade War Reset

(Source – Indian Express, Section – Explained, Page – 14)

Topic: GS2 – International Relations

Context

President Donald Trump announced a 90-day pause on tariffs for most countries while escalating duties on Chinese imports, refocusing the trade war solely on China.

Analysis of the news:

Background: Escalating Tariff Tensions

• The US-China trade war intensified when China retaliated against US tariffs, prompting President Trump to impose even steeper duties.

• However, in a surprising twist, Trump later announced a 90-day pause on tariffs for most countries, effectively narrowing the dispute to just China.

What is a Trade War?

A trade war occurs when nations impose tariffs or trade barriers against each other in retaliation for perceived economic harm or unfair trade practices. It disrupts global supply chains, increases production costs, and impacts economic growth worldwide.

Selective Targeting and Strategic Focus

• While tariffs were paused for countries like India, they were sharply raised on Chinese imports—up to 125%.

• US Treasury Secretary Scott Bessent praised nations willing to negotiate, making it clear that the real showdown is between the US and China.

• The broader trade war, which once involved multiple countries, has now been narrowed down to its original target—China.

Why Baseline Tariffs Remain

• The standard 10% tariffs remain in place and are unlikely to be removed.

• The rationale behind them has shifted from national security to economic balancing to revenue generation.

• These baseline tariffs are expected to partially fund the Trump administration’s proposed tax cuts, giving them fiscal significance beyond trade policy.

Trump’s Persistent Tariff Ideology

• Trump’s belief in tariffs is not new. His consistent view, since the 1980s, is that trade deficits signify economic loss.

• This mindset, reinforced by his economic advisors like Peter Navarro, underpins his aggressive trade stance.

• Trump views surpluses as victories and believes tariffs can coerce countries like China into more “fair” trade arrangements.

China’s Trade Dominance and Structural Challenges

• China’s dominance in global manufacturing, low domestic demand, and export-oriented growth have created global trade imbalances.

• Despite rising up the value chain, China continues to focus on low-cost exports, reducing its imports and worsening global asymmetries.

• Trump’s tariffs are aimed at correcting this structural imbalance, even if his methods are controversial.

Structural Flaws in the US Economy

• The US, by design, runs trade deficits—it consumes more than it produces. This makes tariffs self-defeating.

• Higher tariffs increase prices, dampen consumer spending, and inject uncertainty into investment decisions.

• While the US economy had been on a soft-landing path, tariffs disrupted that trajectory, raising inflation and tying the hands of the Federal Reserve on rate cuts.

Conclusion:

• Trump’s 90-day tariff pause is only a temporary reprieve, not a resolution.

• With no clarity on what follows, uncertainty continues to loom over global trade.

• The shift in US policy from a multilateral dispute to a bilateral standoff with China reveals the core of Trump’s trade strategy but its long-term efficacy remains questionable.

Global impact of Trade War

Stock Market Volatility: Trade wars create uncertainty, leading to fluctuating stock prices. Investors react sharply to tariff announcements, impacting market stability worldwide. Supply Chain Disruptions: Tariffs increase production costs, forcing companies to rethink supply chains. Businesses look for alternative suppliers, leading to relocation of manufacturing hubs. Currency Fluctuations: As investors seek safer assets, emerging market currencies often depreciate, increasing import costs and inflationary pressures in developing economies. Commodity Price Swings: Trade wars can disrupt global demand for raw materials like oil, metals, and agricultural products, leading to price instability. Shifts in Trade Alliances: Countries seek new trading partners to mitigate tariff impacts. Regional trade agreements and economic blocs often gain prominence during such periods.

Practice Question: The US-China trade war highlights the complexities of global trade imbalances and protectionist policies. Critically examine the economic and geopolitical implications of such tariff wars on global markets and India’s trade strategy. (250 Words /15 marks)