Do we need to match US tariffs?

With the US unilaterally threatening to impose tariffs on friend and foe alike, do the affected nations have to impose matching tariffs?

Tariffs are a tax paid by those who import goods into the country imposing the tariffs, and are usually eventually passed onto the end consumers as an increase in prices for those goods. Tariffs are a direct punishment for a country's own people, but the intent is to eventually sabotage the ability of those countries supplying the goods to sell them to the imposing country, so allowing local suppliers to ramp up their own production to eventually supply the country's needs.

Allowing that country to continue to supply their own goods to those same countries without some reciprocal tariffs would seem to be allowing the imposing country to get away with the tariffs scot-free. While for simple consumer goods, that might be the case, but more complicated goods like cars and smartphones follow a much more complicated manufacturing path that crosses several countries, possibly involving several tariff impositions by the one country at multiple stages of manufacturing.

Even without other countries imposing any tariffs, the original country's consumers will be subject to substantial price hikes. However, the other countries involved in the cumulative manufacturing processes will still be paying higher for their stage of import, but not through any tariffs by their own country. That means that any problems would be solely due to the original tariff-imposing country, while the other countries would be still proceeding in good faith. It would be a soft-bargaining position to point out to the consumers in the problem country, hoping for them to apply pressure.

Imposing bans on the tariff-imposing country for other than health or safety reasons would be acting in bad faith, but there is nothing to stop a country promoting manufacturing self-reliance and asking consumers to buy more locally made goods, especially if they are emotionally more aligned with doing that due to the often false reasons for imposing the tariffs to begin with. Tariffs tend to be hard to remove, so each country applying reactive tariffs as part of trade bargaining would create more short-term instability and long-term difficulties for their manufacturing and consumers.

To give local manufacturing time to establish facilities to cater for the expected increases in local demand, they need tariffs that are stable for that whole time, so they can reliably plan costing ahead for the years it will take. This is incompatible with using fluctuating tariffs as a bargaining gambit to threaten other countries. The longer the bargaining goes on, especially if it makes it difficult for local industries to survive, the less chance that the long-term goal of self-reliance will be achieved, if that is genuinely what is being aimed for.

One of the reasons cited for applying tariffs is because of the trade deficits that the US has with most countries, but those have come about because many US companies decades ago deliberately sought out countries with low wages to reduce their manufacturing costs so US consumers could afford their goods. They were willing to lose local manufacturing capability for that goal, and will still prefer to do that, despite their support for Trump. That exploitation has been why the US had become the biggest economy on the planet.

The US does not lose by having trade deficits because those other countries have been getting US treasury bonds in return, thus underwriting the US economy. It has been trust in the reliability of the US dollar that has been why most of the world trade has been conducted in it. However, the trade war has made many nations wary of relying upon the US, and so they are offloading those bonds in favour of other currencies or securities. This weakens the US economy and thus its ability to control as much of what happens on the planet as it has been traditionally allowed.

Trade is complex, and applying simple so-called fixes can be detrimental in the long term, so avoiding retaliation can avoid many of those while providing the moral high ground in the public arena that puts all the pressure on the egregious country's government. These trade negotiations are temporary blips in the long timeline of manufacturing, so getting drastic can lead to bad outcomes. For example, tariff impositions rarely result in the intended boost to local manufacturing, but usually lead to a drop in overall competitiveness as the goods drop in quality while becoming more expensive.

What Trump's tariffs are doing is forcing many nations to look to other more-reliable trading partners, as well as boosting their local production of some goods. Trump does not seem to understand, or ignores, that almost all trade deals the US has been involved in have actually favoured them due to their superior bargaining leverage, such as getting decades-long extended copyright coverage because the US dominated media entertainment.

So while the US is slugging their own manufacturers and consumers with extra costs, the rest of the world is finding a new trade normal without them. Along with their political and security isolationism, the US is adding their economy to that list, leading to an overall weakness in the US effect upon the world, despite the short-term ramifications of Trump's decisions. Cutting off the US consumer market will force other nations to look to their own people to make up the shortfall, which could lead to some improvement in their lives as they will need to have enough income to buy local goods.

Spurred local production outside the US will help equalise the global labour market, making trade more balanced, as it becomes less reliant upon exploiting countries with artificially low wages. That will mitigate many of the negative effects of globalisation as there will be less need to ship parts between countries in multiple stages of manufacture. The possible downside is that expanded consumer bases could lead to further pressure on the planet as waste and energy use ramp up, though a depressed US consumer market may more than compensate for it, given their current excessive consumption.