Trump trade wars indirect for Zimbabwe

The growing imposition of tariffs on imports into the United States by the new Donald Trump administration, and the responding tariffs by those hit, will be changing world trade patterns and could have an effect on world trade, even causing recession in some parts or even globally.

The United States is the world’s largest economy so when it makes a major change in its trading outlook, as it is in the process of doing, this has a global effect as well as immediate effects on the American economy, driving up inflation as imports cost more.

The direct effects on Zimbabwe of the policy changes since Donal Trump returned to the White House are largely limited to what is now almost certainly to be a major reduction in support for health services, or even elimination of that support, especially those services centred around the control and elimination of HIV. More than US$200 miilion a year was granted for assorted health programmes.

That will be a major effect, causing a degree of juggling within the budget to maintain fiscal discipline while filling the essential gaps, but we have been through two such emergencies under the Second Republic, the Covid-19 pandemic and the need to find a large portion of the money needed to maintain food supplies to vulnerable households.

We came through both with flying colours, so the latest is going to be difficult but not impossible.

The direct effect on trade is likely to be minimal since we export little to the USA and import little from the USA.

We were not included on the list of African countries that were given tariff-free entry into American markets, a list that still exists although as wiit every other tariff measure in the USA we do not know for how long. The financial sanctions imposed at the beginning of this century made trade in either direction difficult, not impossible but with American banks having to prove they were not breaking the sanctions.

Even if the Zimbabwean or the Zimbabwean company was not on the sanctions lists, the American banks who would have had to handle the instructions to make payments or which received the payments for a customer would have had to check that a sanctioned person or entity was in no way involved, a cost that many were not willing to bear. So there is not much trade to lose.

The American administration seems to be working down a list of countries that will face US tariffs. The first three, Canada, Mexico and China, are the top three trading partners of the US. The EU has been told in public that tariffs against European products will start soon, perhaps even next month.

No one else knows when their country or region may be affected.

The uncertainty is almost as damaging as the impositions.

Generally, and the US is now different from most states, a Parliament needs to approve new taxes or tax changes, although executives can do so within limits and in emergencies. President Donald Trump is using the emergency of illegal immigration into the United States and the illegal import of synthetic opiates to justify his first round of tariffs on Canada, Mexico and China. At some stage he will probably need congressional approval, and while he has a majority in both houses, this is especially week in the House of Representatives where most tax work is done.

Just two Republicans voting against the President or four abstaining and he loses the measure.

Indirectly, Zimbabwe will probably be effected by the damage to the global economy that trade wars involving the USA will almost certainly bring.

Several large economies that do a lot of trading with the US will suffer some damage in the trade wars, especially while they seek to find other suppliers or other markets to spread the risk.

And a decrease in economic growth or even recession in these countries will have an effect on global growth. It has already been noted that on-again-off again moves do not help to maintain stable trading relations and as Canadian leaders have noted, you cannot work from month to month in a long-term relationship.

A more protectionist US economy is likely to have its own problems, as tariffs raise taxes, basically on the poorer and middle classes as import duties on imported materials, components and products are passed on to consumers.

The rich also pay those taxes, but their consumption as a proportion of their income is much lower.

American exports are also likely to suffer, both from the measured and carefully calculated responses from those hit by tariffs on their products entering the US and from consumer resistance. Most responses have been targeted on specific products, rather than responding to the blanket tariffs from the USA in kind, and some responses include things like barring US companies from bidding on Government contracts, as Canada is doing.

The responders are trying to minimise damage to their own economies while still taking an effective response.

Since the Second World War the world has been moving towards ever freer trade, not at the highest possible speed but with this a goal.

In its several rounds the World Trade Organisation has been slowly plodding along and the difference between what was happening at the starting point, or the world in 1939 before war broke out, and now is quite dramatic.

The need to have an international system of rules for world trade took a major leap forward early this century when China joined the WTO, so ensuring that most world trade was under WTO rules. Outside the USA, and the need for responses to USA tariffs, no one is suggesting any retreat from the steady if plodding process of opening up trade and looking at reducing tariff and non-tariff barriers.

All economists agree that there are substantial economic advantages to ever-freer trade, hence the general policy to regard customs duties these days as revenue raising, rather than protectionist, and their subsequent downwards trend.

VAT charged at a port of entry is not a customs duty, although some in the USA see it as such. Rather is just the way the final sales tax charged when a product is sold is apportioned to each step in the process of manufacture or import.

So we now could be moving towards a dual international trading regime.

Most countries continuing in that gentle progress towards freer trade embodied by the WTO, and surrounding a USA moving at speed in the opposite direction and prepared to accept the price rises and general inflation increases that this will generate, largely inside its borders but also in some of those on the other side the new trade barriers.

There are also opportunities in the new emerging world.

Already in parallel with the Government responses in those countries hit by American tariffs there has been non-Government consumer resistance.

Canadians in particular are starting in ever larger numbers to boycott American products, even if these are not affected by Government measures or return tariffs.

That could open opportunities, even for a little country like Zimbabwe.

Possible areas where we should keep our eyes open are tobacco sales to places that used to import American tobacco and potential extra tourism if the Canadian consumer revolt again American holidays spreads to other regions.

There could also be some who want alternative sources of some minerals.

There are growing ranges of horticulture products that could be slotted into some markets There are also some potential, at the moment far out, possible effects.

With the United State importing more than exports for many decades, there has been a gradual build- up of US dollars held offshore and no longer under the control of the US or its banking system.

These offshore dollars are used in a lot of international trade that has absolutely nothing to do with the United States as supplier, customers or transit point.

The pool gave impetus to the continuing and growing use of the US dollar as the major international currency, There are growing efforts to see if local currencies can replace some of the US dollar payments or at least a percentage in any particular transaction.

But if President Donald Trump succeeds in his stated endeavour to see a positive balance of trade in America’s favour, then the supply of offshore dollars will diminish as these get chewed up for imports from the USA.

No one else sees the US becoming a net exporter any time soon or even becoming an almost self-sufficient country, but these are goals and they well effect world trading patterns simply by existing even if impractical to implement.-ebsinessweekl