Why Trump tariffs 2.0 may well result in a G2 world

A victory by Donald Trump in this year’s US presidential election would spell higher tariffs on American imports. It would accelerate the relocation of production from middle powers such as Germany and Japan to the United States, weakening their economies and solidifying the centrality of a G2 – China and the US – in the global economy.

The inflationary pressure from higher tariffs would stop the Federal Reserve from cutting interest rates. In the long run, as US trade dwindles, the dollar’s global role would decline.

Former US president Trump loves tariffs and has made them a central part of his political platform for years. He appears to believe the US became rich on the back of high tariffs a century ago and that the free trade that flourished after World War II has made the country poorer. He has spoken of imposing a 20 per cent tariff on all imports.

If re-elected, Trump would erect a Fortress America of trade. Parts and components made in Europe or Japan would be suspect, and those made in Canada or Mexico would be unlikely to fare any better. In 2016, “Make America Great Again” probably meant moving the country back by about three decades, but now it looks like it could regress to a century ago.