WASHINGTON: The three most dreaded letters in sequence in the United States are said to be IRS -- for Internal Revenue Service, the tax collecting agency that has most Americans breaking out in cold sweat every April 15, tax deadline day. Incoming US President Donald Trump on Tuesday announced he would create an EXTERNAL (itals) Revenue Service (ERS) on his first day in office "to collect our Tariffs, Duties, and all Revenue that come from foreign sources," a move he believes will fill US treasury coffers and offer relief to Americans, while likely causing major trading nations to break out in sweat.
"For far too long, we have relied on taxing our Great People using the Internal Revenue Service (IRS). Through soft and pathetically weak Trade agreements, the American Economy has delivered growth and prosperity to the World, while taxing ourselves. It is time for that to change," Trump said on Tuesday, pledging to create the ERS on January 20 to "begin charging those that make money off of us with Trade."
Canada, Mexico, and China, the three major US trading partners are first in the line of fire, followed by EU, ASEAN, Japan, and Germany, and to an extent India, Washington's 9th largest trading partner, likely to be affected. Canadian leaders have been rushing to Trump and his advisers to forestall punitive measures that could decimate the country's economy, even as India and other countries are gearing up to meet the challenge that could cause a global economic meltdown.
While most analysts believe Trump's threat is a negotiating tactic to force major trading partners to reduce their tariffs and allowing import of more US products, leveling the playing field, the speed with which he is moving provides little time for negotiations. Canada, for long a benign neighbor and Washington's #1 trading partner, is already starting to crack internally, with the tariff issue causing a rift between Alberta, the country's energy-rich province, and the federal government.
Over the weekend, the province's premier Danielle Smith warned that any export ban on "Alberta oil" -- a move contemplated by Ottawa as a counter-measure -- could spark a new national unity crisis, even as critics excoriated her for appropriating what they said is a "Canadian resource" for her state. Critics in British Columbia from where Canada exports lumber to the US, wondered if they could call the product "BC lumber."
Most major American trading partners have run up a trade surplus with the US by exporting on what Trump believes are favorable terms, while keeping a lid on imports from the US to protect their domestic industry. In India's case, New Delhi shielded domestic apple growers and motorcycle manufacturers for a long time before reluctantly opening its market and reducing tariffs on US goods. In recent years, the US has ramped up its export of products ranging from apples, almonds, and chicken legs to oil, gas, and military hardware, to close the trade gap.
But while India is a relatively minor problem for Washington -- despite Trump's caviling -- its biggest bugbear is China, with whom it has a trade deficit of $280 billion, almost a third of its $ 800 billion deficit with nations across the world. The imbalance is so great that the late night talk show host David Letterman once suggested Americans may as well write a check to China in April instead of paying the IRS.
Trump wants to change that, jettisoning a long history of American trade munificence to lift up other countries. By threatening to impose huge tariff increases, he hopes to put a crimp on imports to the US (even if it means Americans will end up paying more for imported goods as the cost is paid by the importers and passed on to customers), fire up domestic manufacturing, and force trading partners to open their markets for more American goods -- like the American pork Washington is now hawking in India, forcing it to lift a long-standing ban stemming from concerns over ruminant feeding and trichinosis.
Rajghatta is author of Kamala Harris: Phenomenal Woman