CHINA has been hit with tariffs of 34 per cent, Cambodia 49 per cent and Vietnam 46 per cent. This has caught their attention and it’s already working. Vietnam is begging for a trade deal. China has gone the other route and is retaliating in kind. That’s unlikely to work; the US imports (or imported) $430billion from China while just $144billion of goods and services went the other way. If the US consumer decides that a $10 item isn’t worth $13.40 the Chinese economy will take a big hit.
That might not be a bad thing The US sees China as the top threat, as it has been since President Obama looked East and understandably didn’t like what he saw. A trade war may be painful in the short term. A shooting war would be far, far worse. Apple investors will whine about the 9 per cent fall in the stock price but the company is far from bankrupt; it’s just suffered from an increase in the cost of some of its components as Taiwan (home of 60 per cent to 90 per cent of the world’s computer chip manufacture) was hit with a 32 per cent tariff. Presumably the intent is to make chip manufacturing in the US more financially attractive.
Taiwan exists largely due to the reluctance of China to risk World War Three. For years the West has been fretting about the risk of relying upon it for the computer chips that drive the engine room of the knowledge economy (As well as cars, washing machines and mobile phones). President Trump isn’t just talking about the risk, he’s acting decisively to reduce it.
The reliance on Taiwan illustrates one of the problems of the economic thought processes that led to globalisation. For sure Adam Smith would approve of the super efficiency of TSMC and the other Taiwanese chip manufacturers. However he would be less impressed by their growing monopoly and cartel, let alone the aggregation of geo-political risk.
TSMC was established in 1987 at about the same time that the UK started deindustrialising and personal computers were rare. Chip making is a messy industry, the argument ran, and the future is in clean and intellectual design, knowledge and engineering which will underpin the knowledge economy. Scroll forward almost 40 years and the knowledge economy is utterly dependent upon those chips. Where is the value in a research company that can’t function without a Taiwanese chip? Where is the value in a design, product or piece of software that has already been unlawfully copied and reproduced in China?
Yet that’s the reality that we have inadvertently created for ourselves. Davos Man is the product of economic logic. Economics is based on modelling and theories. So is physics, but in physics you can test theories in a laboratory and isolate other parameters to ensure that you have a sound result (even if you can’t explain to the layman what a Higgs Boson is). Economics laboratories are not isolated from the rest of the world so cause and effect are impossible to isolate accurately. (Note, that doesn’t mean that economics is not important and useful, simply that it is not universal and it is not gospel.)
Worse, globalisation is not working as intended. Whether it’s debt-laden UK graduates having to compete for jobs with debt-free foreign graduates with equally good degrees or unemployed steel makers in Port Talbot, the global economy sucks. Combined with mass immigration (the free movement of labour being another economic virtue) it’s making life pretty tough for many western people and families – especially blue-collar workers and the communities they live in. In the US they voted for President Trump as being someone who would do something about it – giving them back car-making to replace the crystal meth industry.
The election result was declared five months ago after an interminable campaign. That gave the markets time to work out and price in what the likely effects of President Trump’s policies. There is no stock market crash because they knew what was coming. Apple’s costs may have gone up, but it’s not in danger of collapse. For whatever reason, the commentariat hasn’t done the same amount of thinking and has missed the major point; President Trump has changed the rules of global trade.
The chart here Worldbank data shows nominal GDP by country for 2025.
Ignore the detail, the point is that the US economy dominates, accounting for over 30 per cent of all global economic activity. China aside, the next biggest country (Germany) is just 5 per cent and the chart tails rapidly. If, as Trump and his voters know, the global economy isn’t working for them personally it’s probably not working for a British truck driver or a Vietnamese Nike shoemaker. The current system is therefore failing and the thinking behind it is wrong. (See also the Divine Right of Kings, taxation without representation and the Spanish Inquisition. Powerful humans have an alarming propensity for well-argued codswallop to support their beliefs, pretensions and aspirations.)
As the President of the dominant economy, the incumbent of the White House is the one person who has the power to act directly to change things. As a real estate entrepreneur, Donald Trump is not afraid of swinging the wrecking ball to enable the construction of something better.
Despite the aspirations of Boris Johnson, there is no World King. There are any number of committees sitting, some sheltering under the UN umbrella, who determine aspects of modern life. Unfortunately they’re accountable to no one, they just exist and expand according to Parkinson’s Law. They recruit from the same international pool of super-bureaucrats. (Top examples include Mark Carney, Christine Lagarde and Ursula von der Leyen. Peter Mandelson never got close. Boris Johnson was never in consideration). As they never face election they never have to demonstrate the soundness of their policies, let alone justify the collateral damage.
This sounds quite like the EU. You might remember that when the UK voted to leave, the various Jeremiahs who predicted disaster were proved wrong. Notwithstanding covid and back-to-back rotten governments we’re doing OK. Indeed, with only a 10 per cent tariff rate imposed on us (more likely due to economics than the persuasiveness of Two-Tier) we’re doing better than the rest of the EU. (We could be doing better if we had left properly, but that’s another article for another day.)
