Tariff implications: What does Trump actually want to achieve?

With the recent revelation by a source inside the White House and the fresh announcement of new tariff rates for some countries, including Bangladesh, the fear of an impending economic crisis has come to the fore again. 

"There's no deadline. It's a self-imposed landmark in this theatrical show, and that's where we are," a source familiar with the trade talks claimed this week. 

The statement from the insider comes at a time when the Trump administration has sent letters to around 14 countries imposing new tariffs, insinuating that these countries are racing against time as the deadline (1 August) for reaching a trade deal with the US to circumvent excessive tariffs  approaches near. 

The burning question now is whether the countries are willing to roll with the punches and negotiate terms and conditions with US President Donald Trump. While the leaders of different countries are left scratching their respective heads over this imminent danger, the bigger question is what is actually going on in Trump's head?    

What does Trump really intend to achieve with the high tariffs? Why is he so hellbent on this particular issue, even when it is jeopardising the US's long-standing trade relations?  

On a surface level, he aims to catalyse a quick economic rebound for the US. But a closer look at Trump's tariff-related speeches and an incisive analysis of the prevailing economic problems (in the US) reveal that Trump has four basic agendas.

One of the main intentions behind reciprocal tariffs has been to strike a balance. Equalising the balance of trade is one of Trump's priorities as he feels that other countries are simply ripping off Americans, taking advantage of liberal trade policies. That is why he is straining every nerve to bring the countries back to the negotiating table under the guise of the tariff threat.

First, he wants to restore America's manufacturing prowess. Recent data suggest that the manufacturing sector in the US is showing signs of decline. According to information provided in the Manufacturing PMI Index, released by the Institute for Supply Management (ISM), manufacturing figures have dipped below the neutral 50 threshold for three consecutive months: 48.7 in April, 48.5 in May, and 49.0 in March. 

In order to offset this decline and restore stability to the sector, Trump has opted for aggressive tariffs, which he believes will incentivise local businessmen to plough back their revenue into the manufacturing industry. 

As higher tariff rates will lead to higher pricing of foreign products imported to the US from other countries, American consumers might lean towards locally-manufactured products, spiking up the demand for US-made products and encouraging US investors to scale up operations by setting up new manufacturing plants to keep up with skyrocketing demands. 

This, as Trump envisions, is also expected to convince multinational manufacturers to shift their factories to the US, which will create more employment opportunities for locals. This has yielded some results, as many companies have announced in recent times that they are ready to invest in manufacturing. 

For example, Apple announced plans to allocate $500 billion towards manufacturing in the US in February. Last month, GE Appliances declared it would invest $500 million to relocate a factory from China to produce washing machines domestically. Furthermore, General Motors revealed in June its commitment of $4 billion to boost production within the US. 

These are primary and early victories, which might have inspired Trump to stick to his tariff policy. 

Second, Trump definitely wants to grow US revenue through tariffs. He even went on to say that Americans will not have to pay income taxes in the long run if the US implements a tariff policy. 

But against the backdrop of astronomical estimates and far-fetched claims, the reality remains that it is not practically feasible to raise such a large amount of revenue from tariffs that could actually match the amount collected in the form of income taxes. 

According to available data, the annual collection from income taxes raised by the federal government stands at around $3 trillion. So, it means the Trump administration has to impose exorbitantly high tariffs (at least 100% on all imported goods) to compensate for the income taxes. 

It not only sounds like a cock-and-bull story but is also practically impossible. Since assuming office, the Trump administration has been able to raise less than $100 billion in tariffs, falling behind on targets by significant margins. 

Third, one of the main intentions behind reciprocal tariffs has been to strike a balance. Equalising the balance of trade is one of Trump's priorities as he feels that other countries are simply ripping off Americans, taking advantage of liberal trade policies. 

That is why Trump is straining every nerve to bring the countries back to the negotiating table under the guise of the tariff threat. While it might work for the time being, this strategy might also boomerang on the US since many countries, just like China, could react with retaliatory taxes. 

Finally, Trump is trying to threaten foreign countries indirectly to devise policies that will benefit the US. To mount the pressure on the countries, Trump is using tariff threats as an axe dangling over the heads of states or industry leaders.  

The problem is that if countries acquiesce to Trump's demands and formulate trade policies accordingly, then tariffs will also have to go away, which will seriously affect the first goal of raising revenue through tariffs. So, it is not guaranteed that Trump's intended goals will actually pay off; the stakes are really high. 

What is more astonishing is that Trump's tariff policy will affect developing nations like Bangladesh disproportionately, undermining the developed world's moral and economic obligation towards developing nations. 

For obvious reasons, business leaders, industry insiders and economic mavens are voicing concerns over tariffs. 

Dr Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD), opined, "The newly announced 35% tariff on Bangladeshi imports by US President Donald Trump will threaten the country's global export competitiveness and pose serious challenges across multiple sectors. 

"Doing business, particularly in exports, under such a high tariff regime, will be extremely challenging for Bangladesh. Furthermore, the impact of the tariff will extend beyond the ready-made garment (RMG) industry and ripple across multiple sectors," she said. 

However, it is too early to comment on whether Trump's tariff strategy will succeed or not. Achieving all the outcomes outlined in this piece simultaneously seems like a pipe dream at this moment. It remains to be seen if the countries, including Bangladesh, will be able to up the ante and negotiate a deal in their favour, or if they will just succumb to Trump's demands.