US President Trump last week announced that he had reached an agreement with Japan to reduce its tariff rate to 15 percent from the 25 percent he announced on July 8. Trump early this week said he had also cut a trade deal with the EU and had agreed to lower the tariff on EU imports to 15 percent, too, compared with the previous 30 percent. Then, on Thursday, the US president said he lowered the tariff rate on South Korea to 15 percent, from a threatened 25 percent, as part of a trade deal.
On Friday, Taiwan got a 20 percent rate, according to an executive order signed by Trump, and the Cabinet said the government would continue negotiations with the US to lower the rate.
From Japan to the EU and South Korea, countries have promised substantial US investment and procurement to spare them from higher tariffs that are set to take effect this week. Based on Trump’s announcements, Japan agreed to invest US$550 billion in the US and establish a joint venture with the US to develop a liquefied natural gas project in Alaska, the EU promised US$750 billion in energy purchases and US$600 billion in investment, and South Korea agreed to invest US$350 billion in the US and purchase US$100 billion in energy products.
The UK, Vietnam, the Philippines and Indonesia also secured lower tariff rates after committing to massive purchases and investments, and all said they would open markets to US goods. For Trump, purchases of US goods, investment in the US and hefty tariffs on imports are means to help narrow the US’ trade and budget deficits, offset the fiscal deficit increases tied to his tax cut bill, and generate more domestic manufacturing jobs.
Globally, Trump is using tariffs to reset the terms of US trade with other countries, while strengthening the US’ relations with allies in responding to China’s growing challenge.
Most economists believe the hefty tariffs would lead to a slowdown in US economic growth and create inflationary pressures after the costs of the levies are passed on to domestic businesses and consumers. Governments around the world have also worked hard to dissuade Washington from raising tariffs, viewing the move as not constructive to global trade.
Ironically, if high tariffs are not a good policy and many people see Trump’s tariffs as unfair and imbalanced, why did they not take the initiative to lower their tariffs long ago?
Maintaining high or low tariffs has its advantages and disadvantages, conditional on the different conditions each country faces, including the need to protect or upgrade domestic industries, an aim to participate in or shrink global supply chains, and efforts to maintain international relations even under pressure from domestic interest groups.
The underlying reasons behind high or low tariffs are complex and intricate, but for Trump, his imposition of high tariffs is just to reverse what he claimed are persistent trade imbalances facing the US due to decades-long unequal tariff structures, foreign non-tariff barriers and policies by trading partners that artificially boost the competitiveness of their exports.
In the face of a US tariff policy which is unequal and lacks reciprocity, most countries, including Taiwan, cannot do anything but face up to reality and minimize the overall damage. However, if the government is preparing to open up the domestic market to US goods as part of a trade deal with the US, which would have a truly far-reaching impact on Taiwan’s domestic industries, the tariff rate becomes almost a secondary concern.
The question now is what the government would do and how much it could do to honor its pledge in trade talks to protect Taiwan’s national interests, domestic industries, public health and food security. Uncertainties abound ahead.
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