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Stefano Tijerina is a senior lecturer at the University of Maine. This column reflects his views and expertise and does not speak on behalf of the university. He is a member of the Maine chapter of the national Scholar Strategy Network, which brings together scholars across the country to address public challenges and their policy implications. Members’ columns appear in the BDN every other week.
Historically tariffs dominated international trade. It was only 30 years or so that nations began to experiment with free trade agreements. Single market initiatives began in the early 1990s, including the European Union in 1993 and North America in 1994 via the North American Free Trade Agreement (NAFTA). It was expected by international business leaders and policy makers that this new experiment would incrementally expand beyond Europe and North America, and it did. Today the United States has 20 free trade agreements, Canada 15, and Mexico 14.
This era of globalization spearheaded by the West, and more particularly the United States, shaped the geopolitical dynamics of the early 21st century. During this period the word “tariff” essentially became taboo, a thing of the past. According to its designers, the “game” of globalization had no flaw in its design. It generated unprecedented interdependency among nations, including the richest ones, and created the greatest era of prosperity in global history. Nobody imagined that the creator of the “game” would threaten to end it, but it happened.
In January 2018, then-President Donald Trump revived the word tariff from the dead and now, in his second term, it is the core component of his foreign policy. From his perspective, this will stimulate our economy, but perhaps it could be counterproductive and backfire.
Globalization could continue its trajectory without us. BRICS countries could fill in the global gap of free trade and all our trading partners could retaliate with their own tariffs. Capital flight from foreign companies operating in the United States that control strategic sectors of our economy could cause economic harm, as well as our own companies that could seek shelter in other global markets that continue to play the “game.”
The impact is unknown in an experiment that is in its initial stages of implementation, one that has given birth to new geopolitical powers such as China and India. While we appear ready to engage in a new nationalist and isolationist chapter in our history, the rest of the world could continue to push forward with its free trade agenda, leaving us behind.
The reality is that over the past three decades bipartisan efforts secured free trade agreements on behalf of our private sector, so that they could pursue business strategies that did not constrain them to our national norms and regulations. Businesses took advantage of this new deregulated system, lowering their labor and environmental costs, while at the same time capitalizing on the currency exchange value of weaker currencies, in order to generate greater profits.
President Trump’s tariff plan of reversing this dynamic assumes that our companies are willing to come back home and sacrifice their current strategic advantages. I would argue that many of our corporations pursuing a global strategy are not interested in this plan; it is not a good deal for businesses dependent on the global market system. For example, it is difficult for supply chains to be rerouted internally when we do not have industrial capacity, and costly for businesses that rely on imports from free trade partners that will now be punished with tariffs. It is a policy that could end up hurting our economy, simply because of our current dependency on the global market system.
Nearly 68 percent of our GDP is reliant on consumer consumption of goods and services, many of which are intertwined with global trade. Tariffs and the counter tariffs imposed on us by other countries would negatively alter our pattern of consumption, because prices would increase to make up for the tariffs and the higher costs of production that would result from producing more goods in the U.S. The adjustment would likely take decades as well as long-term commitment from both political parties as well as the private sector.
I am not against tariffs. They work well for national economies when there are import substitution strategies and policies in place to support the economic development initiative, but this is not the case here. Our economy cannot just disconnect from its economic bloc and other trade agreements. It is structured around free trade.
Dismantling our current development strategy will lead us into uncharted territories — just look at BREXIT. Such a change requires a well thought out strategy and I have not seen one yet, only rhetoric. As Canadian Prime Minister Justin Trudeau recently reminded us, “no American wants to pay 25 percent more for electricity or oil and gas coming from Canada,” and that is the reality. Similar things were said recently by Premier Dennis King from Prince Edward Island when referring to Maine’s economy, at the end more than 50 percent of our imports and exports are dependent on the Canadian economy and not the U.S. economy. Globalization will continue with or without us, the “game” no longer depends on us.
