US President Donald J. Trump has decisively launched a trade war by imposing tariffs on the nation’s three most significant trading partners: China, Canada, and Mexico. In immediate retaliation, Canada and China have announced their tariffs on American goods. Mexico is expected to follow suit on Sunday. Trump has enforced a 25% tariff on imports from Canada and Mexico while maintaining a 10% tariff on Canadian energy products. Likewise, he has raised tariffs on Chinese imports to 20%.

President Trump has imposed these tariffs to address trade deficits. While he anticipates short-term market disruptions, he hopes these measures will make US manufacturing more competitive in the long run. He expects foreign companies to invest in the US, creating jobs and increasing tax revenue. However, in the short term, stock markets have reacted negatively, and there are concerns that these protectionist measures will lead to increased inflation as the prices of goods rise.

Governments utilize tariffs to protect domestic industries from foreign competition. However, they often lead to economic consequences that can ultimately harm the economies they intend to support. Tariffs are taxes imposed on imported goods, artificially increasing the market price. While this protects businesses in the short term, many analysts believe that these tariffs’ long-term effects will be detrimental to the global economy, including the Philippines, which will still have to contend with the impact of higher prices.

Consumers feel the immediate impact of tariffs as they pay more for their everyday products due to higher consumer prices. This results in a decline in overall consumption spending as consumers feel the impact of reduced purchasing power, which the Philippines experienced with the elevated food inflation over the last few years. By protecting domestic industries from foreign competition, tariffs also decrease the incentives for companies to invest and innovate their products and services, which also negatively impacts the consumer in the long term.

The US is a signatory to many free trade agreements, such as the North American Free Trade Agreement (NAFTA). NAFTA has benefited the US, Canada, and Mexico by allowing more effortless movement of goods and services across borders, benefiting both businesses and consumers.

These tariffs are contrary to the principles of free trade, which are essential for global economic prosperity. Free trade gives firms access to larger markets, giving consumers more options for products at competitive prices. Free trade also encourages specialization as economies can focus their production factors on areas of comparative advantage.

While President Trump may see tariffs as a way to protect domestic industries, they often have negative economic consequences, especially for consumers. It is essential for him to consider the long-term effects of tariffs and to implement policies that promote free and fair trade, which ultimately benefits everyone. Free trade acts as a powerful engine for economic development and global progress. By embracing the principles of open markets and competition, the US can unlock its full economic potential instead of alienating its closest trading partners while creating a more prosperous future for all. Sadly, it seems that President Trump is choosing the more combative path.

The views expressed herein are his own and do not necessarily reflect the opinion of his office as well as FINEX.

 

EJ Qua Hiansen is the CFO of PHINMA Corp. and president of the Financial Executives Institute of the Philippines.