Why hasn’t this risk raised an alarm so far?
‘The curious incident of the dog in the night-time’ is an expression that has acquired a life beyond the tale of Silver Blaze, in which Sherlock Holmes solves the mystery of a missing race-horse, to highlight the significance of events that fail to occur even as we focus on events that do.
It is also apt for the global response to US President Donald Trump’s tariff tantrums.
Unlike in the aftermath of America’s Smoot-Hawley tariffs of 1930, Trump’s high and uneven tariffs against country after country have not been followed by a round of protectionist measures by other trading nations.
The beggar-thy-neighbour policy of competitive barriers that many US trade partners adopted back in the 1930s had deepened and spread the Great Depression that began in 1929.
So far, we have had little indication that Trump’s tariff victims will act in fear of their home markets being overrun by diverted goods from other countries—also faced with US market barricades—by raising their own tariffs to shield local producers from imports.
While some talk of retaliation has been in the air, globally, we have not yet seen much knock-on tariff escalation. Why this ‘dog’ has not barked is worth exploring.
When Trump first mooted his tariffs, several countries said they would retaliate by hiking duties on imports from the US. Why this has not happened, by and large, is partly explained by America’s role in assuring the security of its geopolitical allies—not just in the rich world, but elsewhere too.
Till Trump came along, Europe was content to let America do the heavy lifting of the North Atlantic Treaty Organization (Nato), a defence umbrella under which many rich nations could shelter even as it afforded them the luxury of spending heavily on welfare.
In his first term in the White House, Trump asked all Nato allies to spend 2% of GDP on defence, as committed. Now, he wants that outlay upped to 5% of GDP by 2035. Beholden as the EU is to the US for its safety, with Russia close-by, it can hardly risk an actual trade war with its benefactor.
Similar logic may be at work in the Far East as well, where China has been flexing muscle. Of course, US-archrival China has played a retaliatory game, as its strategic autonomy lets it. And while uneven US entry rates make some trade diversion within Asia likely, global tariffs have generally stayed calm.
The evident value of trade integration also militates against the likelihood of a mercantilist redux of 20th century frictions that preceded World War II, even stoked the tensions that led up to it. The EU project was partly born of those lessons.
A burst of economic globalization after the 1991 collapse of the Soviet Union, a moment hailed as the triumph of free-market capitalism, has left us a world that has gained from barrier-free trade and supply chains that transcend national borders.
A significant gainer has been China, ever since it spotted glory in getting rich and found export markets to do just that. Even if the World Trade Organization has not offered a perfect aegis for it, much of the world has seen prosperity in trade barriers slowly being eased all around.
With integrated markets, import levies act as taxes on local consumption and foreign inputs for domestic businesses, raising the barricaded country’s own cost base.
While Trump inflicts costs on US industry, other national leaders have shown restraint. Unless global responses take a turn for the worse, maybe the textbook theory of trade being win-win can be credited for the missing bark.
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