Hussein Askary (Vice-Chairman of the Belt and Road Institute in Sweden)
After his election victory in November, President Donald Trump promised to address what he viewed as an ailing U.S. economy as the primary goal of his administration. He also promised in his State of the Union Speech on March 4th to create an economic “golden age” that America has never seen before. However, the U.S. stock market, which he himself has considered as the benchmark for his success, dropped sharply on that day and the following days by more than 10% from its December all-time high. Fears of inflation figures coming out this week could make the bad situation even worse. On Wednesday, March 12, the U.S. consumer price index (CPI) report will be released. The CPI report, which is published monthly by the U.S. Bureau of Labor Statistics, is a key measure of inflation that tracks the average change over time in prices paid by consumers for a market basket of goods and services.
Just less than two months after his inauguration, Trump’s policies have sparked global trade tensions and a stock-market downturn. Despite promising a golden age, Trump acknowledges potential short-term disruptions and “some pain” due to increased tariffs. Treasury Secretary Scott Bessent supports this approach of “no pain, no gain”, suggesting the economy needs a “detox” from public spending. Inflation and economic slowdown are looming, adding to consumer and investor anxiety. Trump’s trade wars have particularly targeted Canada, Mexico (with tariffs up to 25%), and China (20% tariff across the board), causing significant market declines. Despite this, Trump remains hoping for long-term manufacturing growth and dismisses market concerns. But that is still in the realm of wishful thinking rather than objective reality. Last week’s economic data showed modest job growth and a slight rise in unemployment.
American citizens are expressing concern about the impact of the Trump tariffs on consumer prices and. According to a March 8 article in the Washington Post “more than 9 in 10 Americans say they have negative views about food prices, while more than 7 in 10 feel dissatisfied with the incomes of average Americans, according to the Post-Ipsos poll.”
Why don’t tariffs work anymore?
“Tariffs on their own do not create more American jobs or lead to more US production. In fact, Trump’s last trade war cost roughly 300,000 jobs. All these new tariffs will do is give corporations cover to jack up prices and pad their profits at our expense,” said Robert Reich, Professor at UC Berkeley and former Secretary of Labor of the United States under President Bill Clinton, in a meme on social media on March 4, 2025. This point was illustrated by Professor Yan Liang, a Peter C. and Bonnie S. Kremer Chair of Economics at Willamette University, Oregon, in a recent interview.
“Tariffs are mostly paid by importers who, in turn, pass along the higher import costs to consumers”, she said, adding that “with consumer goods now subject to these new tariffs, American consumers can expect to see price increases on a range of products, including consumer electronics like iPhones and computer equipment”. As is well known, many of the top consumer goods are imported from China. In addition, she emphasized that lower-income families would be hit hardest by the rise of inflation which is generated by these tariffs because spending on consumption of imports which are more affordable constitutes a larger share of their income, and they will be more affected by the tariffs than higher-income families. “Additionally, as about 1/5 of Chinese imports are intermediate goods used in U.S. industrial production, the higher costs of these inputs could increase production costs, which could get passed on to consumers, she concluded.
What will make things even worse is the fact that China, as its economy has gained enormous potency, is now capable of retaliation in kind. On March 3rd, the Chinese Commerce Ministry announced that China will slap new tariffs of up to 15% on top U.S. farm products such as soybeans, chicken, and beef. Farmers are a sensitive political base in the U.S., and the rural areas played an important role in Trump’s election victory. However, there are mixed feelings about Trump’s policies in these areas according to American reports. In the last trade war that Trump started in 2018, U.S. farmers missed up to US$27 billion in lost exports to China. China’s enormous consumer market has now the capability to attract other producers. After 2018, China turned to Brazil and Argentina to replace soybeans produced by American farmers. Last year, a study conducted by the American National Corngrowers Association warned that in the event of a new trade war, U.S. soybean exports to China could drop by 51.8%, and U.S. corn exports to China could plummet by 84.3%.” Meanwhile, it stated, Brazil and Argentina would likely increase their exports, gaining valuable market share.
When it comes to manufacturing, China this month imposed tariffs on farm machinery, large-engine cars and pickup trucks. China can replace these goods with China-made ones. China’s farming machinery sector is well advanced now, but it still lacks the soft power and popularity of famous American brands such as John Deer & Co. The latter has warned recently that while Chinese tariffs on American agricultural machinery might not be very harmful, nonetheless the fact that American farmers could be losing market shares in China would affect the company indirectly as the farmers’ purchasing power will decline and their inventory of farming machinery shrinks. Besides, it is widely admitted that U.S. tariffs on imported steel and aluminium will increase the cost of production of machinery inside the U.S.
Professor Yan stressed that China’s retaliatory action “restricting 25 rare minerals exports, including tungsten and indium, which are essential for electrical and aerospace products” will negatively affect many of these important industries inside the U.S. China has achieved absolute dominance over the rare earth elements’ (RRE) production by 2023, according to a study conducted by the Oxford Institute for Energy Studies. It stated that “although the REEs are not geologically rare, China dominates the supply chain, accounting for 70% of global rare earth ore extraction and 90% of rare earth ore processing. Notably, China is the only large-scale producer of heavy rare earth ores.” The fact of the matter is that it is not enough to acquire and extract REE deposits as President Trump hopes to do in Ukraine. The processing of these extracted deposits is a delicate and costly factor of production of the final minerals that can be used in industries.
With the world supply chains being extremely entangled today, as we showed in a previous article, it is impossible for any one nation to achieve absolute self-sufficiency and independence in every sector. It is more cost-effective to cooperate and partner with other nations who have a higher leverage in certain areas and need outside input from others. Global common prosperity can be ensured and peace and security built on a firmer foundation. The current trade and tariff wars are not making these goals achievable. Interdependence and co-existence should be self-evident in the world we live in today.