As the FT noted last night:
Lesotho's trade minister has warned that the country's textiles industry, a major exporter to brands such as Levi's and Wrangler in the US, risks having to fold if Donald Trump presses ahead with 50 per cent tariffs.
Mokhethi Shelile told the Financial Times that a national “state of disaster” declared this week would allow the government to fast track the creation of 60,000 jobs in other sectors over two years, as it prepares for the end to the pause on the so-called liberation day tariffs the US president announced in April.
I am not, for a moment, going to pretend that Lesotho's garment trade is likely to be undertaken on fair terms, or without exploitation. We all know that the garment trade is riddled with problems, the world over. However, the one thing we can be certain of is that Lesotho is not exploiting the USA when it comes to the garments that it exports to that country. Never, in the history of this trade, has a country in the Global South exploited a country like the USA, to which it exports garments for consumption in that place. To pretend otherwise is to totally distort history and fact. Trump's tariffs on Lesotho are, then, based on that distortion.
They are also based on a myth, which is that the USA can substitute for the import of garments from places like Lesotho when, in fact, around 97% of all garments worn in the USA are now imported. There is, quite simply, almost no US domestic garment manufacturing industry anymore, and nor has there been for a very long time because the rates of pay made to people working in this industry are so low that no one in the USA could profitably manufacture garments at the prices at which they are on sale in that country, or in most other developed countries, like the UK, come to that.
So, whilst I would argue that the terms of trade between Lesotho and the USA almost certainly need reform, the last thing that they require is a tariff to be imposed by the USA on imports from Lesotho, which, for reasons that are hard to explain, is suffering one of the worst penalties under the new tariff regime that Trump is creating.
There are at least five consequences of this tariff, in the first instance.
Firstly, Lesotho will, as the article describes, suffer a "national disaster". The immediate loss of stable employment there will be hard to recover from.
Secondly, that loss will occur because this tariff will increase the price of goods in the USA, reducing demand for goods from Lesotho.
Thirdly, the US consumer will, as a result, also suffer, and the inflation rate in the USA will almost inevitably rise because of the inability of that country to substitute for the products that it is importing.
Fouthly, that increase in US inflation rates will almost certainly result in an increase in US interest rates, and that will impact on Lesotho because it will have foreign debt denominated in dollars, the price of the interest on which will now rise, meaning that it will struggle even more to make its national economy balance. And it cannot create money, like a developed country can, to meet its obligations because it borrows in currencies other than its own.
Fifthly, this inevitably means that both the USA and Lesotho will be significantly worse off as a consequence of the imposition of tariffs. In this case, that will follow like night does day.
So, why is Trump doing this?
Stupidity?
Mendaciousness?
Because he said he would, whatever the consequences?
You take your pick, because whatever option you choose, there is no good one. Trump is pursuing a policy that only has downsides, and that is why I am worried about the imminent state of the world economy, which is not looking good.
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Sixth, more people from the Global South will try to gain entry to Europe and North America to earn money for their families.
Zambia has to spend more on debt servicing than it spends on its health service. This is an exploitation Trump ignores.
The developing world has already lost much of the US/UK aid budget. It might feel defaulting is the best option.
If Trump’s tariffs lead to a stock market crash, then interest rates will come tumbling down. Otherwiese agree with everything you say on tariffs.
No they won’t, because inflation will rise and we know what central bankers do in that case.
I know this is counter-intuitive and therefore not the normal expectation, but the value destruction in a crash will, in my view, override the inflationary effect of tariffs. The economic background is already deflationary.
Maybe, but I think central bankers will up rates anyway.
A few examples, for you and other reader who may not be inclined to be “connoisseurs” of denim or dabble such things.
The cost of a pair of jeans made from Texas cotton in Japan, Canada, or Italy (which are the only countries to my knowledge where they make denim from Texas cotton) is typically at least three to five times greater than a pair of jeans (which won’t be made from Texas cotton) made in SE Asia, India, Africa or anywhere else. And this was before the Trump tariffs.
Closer to home examples. Have a look at the difference in price between a pair of “Made in England” Dr Martens, or a pair of New Balance trainers made in England, compared to the same/similar designs made in SE Asia. If my memory serves me correctly the price is again around three times higher.
Of course, if you have the money you can afford to pay the extra, but the vast majority can’t. As with the ‘two dolls’ and ‘one pencil’ from Trump of a few weeks ago, I’m not at all sure he knows what the consequences of his actions are – much less cares (I wonder which country makes his golf equipment – China makes his MAGA hats).
He pretends he knows nothing of impecunity. He has bankrupt numerous times though….
And thank you.
The only conclusion I can come to is that Trump and his backers seem to want to set the U.S. up as their own little fiefdom to left alone to rob it for ever and abuse the trust of the American people.
One possible outcome: the Chinese will step in (maybe). Hazarding a guess, they probably already supply the various textile machines. In some/many(?) places in Africa they are not well liked – but one could say that for whitey (US and Europe). Having failed with respect to peace (Ukraine – Russia), failed in the middle east (Israel-Gaza & perhaps Iran), Trump thinks he can win with tariffs. He won’t, he cann’t. For reasons given in the blog.
One wonders when/if US serfs will ever wake up.
Too late is the only thing we can be sure of
It is already too late
King Donald believes that tariffs will raise billions of $ in tax, not paid by the US consumers, but by the companies exporting to the US.
Expect more of the “be nasty to US companies” then I will raise taxes on non US companies trading in the US.
Del Monte has filed for Chapter 11 bankruptcy due to the tariffs on metals for their tins.
Don’t be surprised to see huge emergency Federal grants to all sectors of the US economy to keep them alive.
For example professional gamblers can now only deduct 90% of their losses from their gambling winnings rather than 100%. Las Vagas is already screaming “it not fair, we will perish”
The only ray of hope I can see in this chaos is that maybe Americans will throw away fewer clothes, and even perhaps start to repair garments. Small comfort, though.
I’ve often wondered why an “undeveloped country ” cannot create its own money” and has to borrow. Please explain!! The US conducts economic warfare on many countries through sanctions, tariffs, political warfare and then wonders why so many people end up at its borders through economic desperation. Before NAFTA there were no immigrant line ups at the southern border but “free trade” where subsidized agricultural goods from the US undermined the agricultural economies of south and central America led to huge dislocation. It is still persecuting Cuba for no good reason… just because it can, once again leading to people having to leave in order to make a living. Most people do not want to leave the countries where they were born but are left with little choice. African countries especially have enormous natural resources and yet their people are leaving on dangerous missions to find employment/a life abroad. Corporate exploitation, taxation policy… if we could actually admit the real reasons for growing global poverty and actually co-operate instead of compete the world could be a much fairer place.