Reciprocal stupidity

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Reciprocal stupidity

Trump’s decision on high tariffs is to keep his base happy. But will it work?

Donald Trump came to power as the 45th President of the United States with the slogan, ‘Make America Great Again’. And his inaugural address was all about putting ‘America First’. In such, Trump sounded a lot like the isolationists of the 1920’s and 1930’s in the US who wanted the industrial superpower to stay out of global affairs. The attacks on Pearl Harbour though changed all that, and set the stage for three-quarters of a century of American economic and military hegemony.

For a long time that meant America stayed a manufacturing powerhouse. But American corporations, in particular, drove to cut down costs and feed the American consumer machine. Foreign companies also started to feed the American consumer in the 1970’s that began with Japanese car companies, particularly Honda and Toyota making cars for the US market. In the past two decades, it has often been American companies, the likes of Apple, for example, who shifted production to China to keep costs down. At the same time, American companies started to buy steel and aluminum (aluminum as they say in the US) from global suppliers, particularly China, where prices were kept artificially low by the Government. India too gained, while not so much on raw materials and manufactured goods — Indian IT companies powered the software and services at the back-end for many American companies. All of this had a dramatic impact on American jobs, the manufacturing heartland in the US Midwest was decimated. ‘Motor City’ as Detroit was called as the home of General Motors, Ford and Chrysler were hollowed out. Ruin and neglect became the hallmark of parts of the US. While creative, technology and financial economy ensured the US remained an economic superpower, a growing feeling across the country was that of how foreigners had taken American jobs. Trump channeled that anger into propelling him to the White House. And his decision on tariffs is to keep this base, including workers at the Harley-Davidson factory in Wisconsin happy.

To keep Harley-Davidson workers happy, while their management has made no such requests, Donald Trump wants to increase tariffs on motorcycles from India, which primarily impacts Royal Enfield’s range of Bullet motorcycles exported to the US. While exports of Bullet motorcycles has shot up in the past few years, it is unlikely that any tariff increase will impact their popularity in the US since they are cheaper than Harley-Davidson’s, and while a tariff reduction by India on motorcycles (as just happened) might entice some more buyers for Harley-Davidson’s, the American company has to compete with the likes of Triumph and BMW for those sales. Cheaper imported motorcycles will not necessarily translate to more sales. It is a similar case with other products and other nations have reciprocal tariffs on a range of American goods. Donald Trump appealed to the nativistic tendencies of those who feel that globalisation is bad. But America has also gained immensely from globalisation and attacking the global trade system will hurt Donald Trump’s base the most in the end.

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