America the vandal: Time for multipolarity to move forward

Editor's note: The article, written by Warwick Powell, adjunct professor at Queensland University of Technology and senior fellow at Taihe Institute, reflects the author's opinions and not necessarily the views of CGTN. 

For the past two decades or so, the contours of global trade have progressively evolved in ways that have seen China emerge as the largest trading partner of over 150 nations. In that time, the US market – once the honeypot – has ebbed to now contribute a little less than 15 percent of global imports. This trend continues today, in large part because trade amongst the rest of the world is growing at a rate faster than that with the US.

The US administration's raft of "reciprocal tariffs" will not abate this trend. Rather, it will accelerate this pattern.

In announcing a raft of capricious tariffs against all and sundry, the US has dropped the decades-old facade of liberal benevolence, in favor of revealing its angry soul of narcissistic exceptionalism. By declaring trade war on the rest of the world, the US has declared itself the vandal of world order.

The tariffs aren't reciprocal. This misnomer was exposed when the formula for calculating the numbers was rapidly reverse engineered and shown to be nothing more than a calculation of the proportional deficit between the US and other countries. For those countries that actually have a trade deficit with the US, the US levies a default 10 percent tariff anyway. This is an arbitrary and capricious approach to economic policy making, which reflects a deep-seated sense of grievance amongst those in the Trump administration.

"America the Exceptional" has been mistreated by the rest of the world, so the claim goes. The tariffs aim to set things straight. The tariffs are a means of reclaiming what is owed; what was unfairly taken. Howard Lutnick, Trump's Secretary of Commerce, was clear when he said: "What's happened to the world is the global governments have backed taking our factories away from us."

Yet, there's plenty of good reasons to conclude that tariffs will not help return these factories to American shores, let alone rejuvenate American manufacturing. On this score, study after study of Trump's first round of tariffs have concluded that net employment impacts were negative, and that they did not catalyze a manufacturing renaissance in America. Rather, the studies have confirmed that increased costs were either absorbed by American firms impacting profit margins and their sustainability, or were passed on to downstream buyers and end consumers. On the whole, Americans have been worse off.

But, all this notwithstanding, it is clear that Trump is not one for turning. So, today, we are confronting a world in which the US – representing 15 percent of global trade or thereabouts – is imposing tariffs on all comers. What hasn't worked so far is simply an invitation to double down.

The real question is how can the rest of the world respond, and what the implications of such responses are likely to be. Some countries, mainly small ones, have formally reached out to the US administration to open channels of communication for bilateral negotiations. Some are intensifying work to strengthen bilateral and multilateral relations. Others have responded with announced intentions to reciprocate. The EU has vowed to take a tough line; Canada has declared that the cosy relationship with the US is over.

China, for its part, has announced a series of initiatives by way of direct and indirect responses.

In the past week, China has announced prohibitions on Chinese firms investing in American companies. China has refused to yield in the face of American demands on the disposal of TikTok, with Trump extending by 75 days the previous deadline for the ban on TikTok. As Trump sought to lay claims to the ports at both ends of the Panama Canal, China has quietly announced intentions to review the potential on "antitrust" grounds, effectively causing an indefinite deferral of any transaction. China has announced export controls on seven types of rare earth related items, and added 27 US companies to the list of firms subjected to export restrictions. These are firms involved in potential dual-use (civilian and military) outputs. Additionally, China has announced a dumping inquiry on American-imported medical CT tubes.

In response to the 34 percent tariffs on Chinese goods announced as part of the Trump package, China has reciprocated with 34 percent tariffs on all goods of American origin. Clearly, China isn't alone. These responses are in large part a political message that America's unilateral imposition of tariffs, in contravention of international trade law, won't be accepted without response. Yet, it's their economic significance that will ultimately matter. The pivotal question is: how does China's response impact the global trade landscape, and what does it mean for the rest of the world?

In short, China's 34 percent tariff announcement effectively means it is creating the conditions whereby Chinese firms and consumers will, for sensible economic reasons, turn their attention away from American goods and seek substitutes from others. This means exporters in other nations, facing high American tariffs, will find some cushioning effect from China's substitution move.

Brazil, Argentina, Spain and Denmark are at the front of the queue with alternatives to American soybeans, corn and sorghum. Add to the list meat proteins, Australia and New Zealand are looking on with enthusiasm, not to mention other countries in Europe and Latin America.

China has been a market for US LNG. LNG can be sourced from Qatar, Australia and Russia. China can boost imports of crude oil from Saudi Arabia, Russia and Iran. OPEC's increased output will drop prices so it's a buyer's market. A drop in crude prices also runs the risk that it will render new American shale projects unviable, as most now require a breakeven point of a minimum $64 per barrel, with higher range estimates closer to $80 per barrel.

The US ships some coking coal for Chinese steelmaking. Australian coke is a great substitute, and US coke will have to find alternative markets.

As for technology products, China can bring semiconductors and chips in from South Korea (Samsung, SK Hynix), and of course boost domestic capacity (SMIC, YMTC). In terms of software, there are now many alternatives to that covering everything from operating systems (Linux and HarmonyOS) through to applications themselves (WPS instead of Microsoft Office, for example).

Aircraft and aerospace parts can see Boeing's exports of aircraft and components replaced by Airbus (Europe), Rolls Royce (UK) and COMAC (China's domestic C919 aircraft development).

Germany, Switzerland, Japan, and domestic biotech firms will fill the void of American medical equipment and pharmaceuticals. For example, on CT tubes, supplies could readily be sourced from Germany's Siemens Healthineers and Dunlee (Philips), or Japan's Canon Medical Systems (formerly Toshiba Medical) and Hitachi. China's own advances in health technologies also mean domestic capabilities will grow.

As for automotives, US exports of premium brands (like Tesla, GM and Ford) can be replaced by German (BMW, Mercedes) and Japanese (Lexus, Toyota) marques, and of course increasingly domestic EV brands. American specialty chemicals and plastics will give way to those from Germany (BASF), Japan and South Korea.

There is very little in the world that America supplies that cannot be substituted cost-effectively from suppliers elsewhere. China's 34 percent reciprocal tariff on all American goods will catalyse an expansion of Chinese imports from other countries, across a broad range of products. China imports over $160 billion of goods from the US, making China one of the US's largest export market.

As the rest of the world seeks to recalibrate its trading posture, China has emerged as its largest growth market opportunity. The long-run trend in the changing contours of international trade has not been disrupted by Trump's tariffs. If anything, the trend has been accelerated. Responsible global actors will continue to see the merits in multilateral trade. America "going rogue" will reinforce this message, consolidate the opportunity for the rest of the world to deepen trading relationships and hasten the arrival of a truly multipolar world.