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US Tariffs & Sanctions, Will They Work?

The new United States administration of President Donald Trump has very definably stated that they intend to impose sanctions and tariffs on various nations across the globe starting with China, Canada, Mexico and South Africa and above all, the nations of the BRICs and those joining it (not forgetting those nations they want to suppress for various reasons). This economic sledgehammer has been used to good effect in the past by the USA to ensure its dominance economically by ensuring trade based firstly on the US Dollar and secondly, by forcing nations to accept business terms that were beneficial to the USA but detrimental to the nation supplying the goods and services.The decline of the US Dollar’s usage in global trade has become an urgent and very real problem for the USA which by weaponising the use of the Dollar maintained the integrity of its currency while endlessly printing fiat money by the bucket load and so maintained its global hegemony. The current US deficit is over 34 Trillion US Dollars and is backed by nothing other than the sale of US debt to other nations in the form of Treasury Bonds, the sale of which has declined sharply over the past year. The new administration is well aware of the impending crash and is taking all measures it deems appropriate (though most other nations disagree) to save itself from being declared impecunious or worse still, bankrupt. The United States imports the most goods and services and it adds up to almost the amount imported by the other four largest importers in the world combined (the UK, France, Germany and Japan). Imports account for 12% of GDP (again a figure which belies the true state of affairs since so much is not listed as imports) and are growing at a rate faster than its exports, a continuing increase since 1971 when they imported more than they exported.

Let us start with China. Chinese exports to the USA account for a grand total of 2.7% of its total exports. China accounts for 20% of all manufactured goods globally and exports more to the Global South than the entire EU and G7 combined and has a home grown consumer base of 700 million people. It has recently signed major decade’s long trade deals regarding the supply of energy (gas, petroleum etc.) and essential goods like foodstuffs and minerals with major producers and buyers like Russia and India among others, using trade routes that cannot be disrupted by naval blockades as they are mainly overland. Further, it is leading or on par in major technologies like AI, Chip manufacture and certain military technology like hypersonic weaponry so any sanctions in the technological areas are unlikely to have any effect. The most obvious effect of tariffs and sanctions placed against China will be on the citizens of the USA itself and as such will be an inflationary negative impact on an already fragile US economy. China leads the world in high speed rail networks and the production of renewable energy from Solar, Wind and Hydroelectric installations. Quality of life in China is not only advancing but for most people is better than that of the USA with its homelessness, rising crime rates, growing drug problem and decline of living standards due to the rising cost of living making it even more difficult for many people to stay afloat financially.

Russia. Well, even the once highly reputable IMF (international Monetary Fund) had to admit that Russia’s economy is not only sound and growing (at a predicted rate of approximately 5 % this year) but that the debt that Russia has is only around 3 % as opposed to the USA’s? % (the real figure is hard to determine since the USA’s GDP is not a reliable figure as is the true amount of its debt). It is reliant on itself for energy, food, most raw materials and having withstood 16 different sets of Sanctions imposed on it since 2022, is unlikely to be more than temporarily inconvenienced by new added ones. It trades to the largest extent with the world outside the USA and EU and is not reliant on them for markets to sell its goods in. It too has taken the lead in technology especially military, AI, quantum physics and other areas and is not reliant on the USA and Western produced technologies any more. Like China, it not only has its own home grown operating systems for computers but has started to produce very good android phones and motor vehicles including electric ones which are driverless. It has to a large extent bypassed the western financial system (banks, stock markets and its financial institutions like the IMF) and not only implemented alternative financial systems but uses its own currency as well as that of China in international trade.

Canada and Mexico are at the present, ramping up the war of words with retaliatory tariffs against the USA so what the outcome will be is hard to determine as the USA dropped some of the tariffs on Mexico in return for agreements regarding Border Controls to stop the inflow of economic migrants posing as refugees from wars, corrupt governance and more since though these are valid reasons, they are not the main one. Both Mexico and Canada will suffer economically as they are to a large extent dependent on the USA as a market for their goods and services but as the examples set by Russia, China, Iran and other nations show, with careful application, they are overcome in a reasonably short period of time and do not lead to economic collapse. However, Canada is at a disadvantage to start since it is the main exporter of crude oil to the U.S. and the USA is the primary market for 77% of Canada’s total exports. Canada has many of the essential raw materials the USA needs especially the so called rare earths as does Greenland. Whatever retaliatory measures the Canadian’s implement, they still have to contend with the volume of their exports going to the USA and soften their stance to allow the USA to gain at their disadvantage. Canada’s total imports from the USA amount to a mere 18% and so there is no equality of loss of trade to use as a negotiating tool in the exchange with Washington. It is to America’s advantage to contain Canada within its sphere of influence as it is a neighbour, a vital supplier of power and raw materials (some essential)including foodstuffs, a geopolitically strategic asset and the top of an ‘enclosed ‘ North America, a semi modernised version of the Monroe Doctrine. It is to be expected that Canada will settle down and reach agreement with the USA fairly quickly despite many vociferous outbursts of indignation from both serving and would be politicians and pundits in Canada.

Mexico however is a completely different scenario with many differing factors at play. Mexico’s main market is the USA which purchases 83% of its total exports and only provides 16% of Mexico’s imports annually in return. So Mexico’s dependency on America is total and like Canada, it cannot afford to bite the hand that feeds or the government will collapse with a good likelihood of a sudden drop from civil society (of sorts in the present day) to anarchy and fiefdoms. The Mexican drug cartels are exceptionally powerful and would seize any opportunity to establish their own rule on areas of the country through any means possible as they have repeatedly shown on a more localised scale. They are a highly visible problem to the USA in their effect on its economy and social structures but being beyond the control of the Mexican authorities, would require American military assistance to break, an issue which would cause serious concern to most of the population who not being in any way for the drug cartels still do not want American troops on their soil. The issue of migrants crossing Mexico to get to the border with the USA are still not resolved and the Mexican government has to tread carefully taking into account regional issues with South American nations, their own population and the cost and means to implement controls at a tangible and visible level. These issues will mean that quite possibly like Canada, Mexico will fold overall and submit to the USA’s demands and domination given how much their economy is tied to the United States. This would make North America into a cohesive and militarily complete continent with only South America being brought into the fold to complete the main part of the new Monroe Doctrine.

The issue of the BRICs is a major problem which overshadows all the other issues that America is facing. The BRICs nations are 45+ % of the global population and produce 40+ % of the worlds GDP (based on PPP, Purchasing Power Parity). They are all moving away from using the Dollar as their main method of transaction internationally and starting to use other financial instruments and markets in preference to western ones like the IMF, World Bank, London’s Stock market and of course, the ‘expert ‘ western financial firms and insurance companies. The Dollars reign as the world’s Reserve Currency and its pre-eminence in all aspects of international financial dealings is starting to decline at an ever increasing speed. The growing list of members lining up to join the BRICs means that most of the ‘3rd World’ or Global south is joining the largest economic and political block on the globe, well out of the control of the USA and as such, beyond the usual business practices of looting and subjugating them to benefit only the USA and keep the rest constantly owing the company store. Sanctions and tariffs have a limited time period to be made to work on these nations, 5 years at most, after which the effect will be negligible, and the clock is ticking. Further to all of this is the fact that the mainstays of the supply of cheap raw materials are the producer nations, many of whom are already part of or will become members of the BRICs. They are busily developing their own markets and finding other buyers so as to increasingly minimise their dependence on western markets like the USA and the EU and their move away from the use of the Dollar to their own currencies (including barter) gives them greater flexibility as well as increased profit margins.

The USA will be reasonably successful in the outcome of political and economic measures against both Canada and Mexico who will implement many of their demands in order to stay solvent and reduce the negative economic impact of US tariffs. China will feel very little impact overall as it is well outside the sphere of being subject to the USA’s economic decisions. Russia will after 16 sanctions packages adjust marginally but feel little if any pain. South Africa will however be in a very serious position with a good likelihood of slipping into recession. The BRICs nations overall will weather the USA’s threat very well as the larger ones have already taken measures to avoid being held to ransom by the USA and the 2nd tier or smaller nations have either implemented or are starting to, measures that diminish their reliance on the USA as a market and to a lesser extent, the western nations. In essence, the announcement by the White House of tariffs and sanctions is aimed more at Canada, Mexico, South Africa and in the case of the first 2, will bring them to heel. South Africa will be interesting to watch as it is a BRICs member but as regards the rest of the BRICs nations, little will change for them. However, the USA has made its position clear and we can expect further developments in the very near future as its financial predicament increases and the day of reckoning comes ever closer.