Are tariffs necessarily a catastrophe or a catalyst for a developing economy like Nigeria? Tariff originated from the Arabic word “arrafa”, later translated into Italian as “tariffa” and via French to English as “tariff” and has been dominant in international trade for ages.
The 16th to 18th centuries were the era of mercantilism, where sovereign states maximised wealth acquisition through expanding exports and minimising imports. Tariffs on imports were advantageous in subsidising exports and reinforcing monopolies. In 1776, Adam Smith published “The Wealth of Nations”, advocating for the revocation of mercantilism, high taxes, slave trade and monopolies, as individuals need to fulfil self-interest to result in societal benefit through the creation of goods and services to drive a free-market system where individuals, organisations, societies and countries can focus on what they know how to do best while engaging other players on goods and services those players have an absolute advantage on.
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In 1791, Alexander Hamilton proposed the “Infant Industry Theory”, a protectionist measure against competitive measures until maturity for smaller institutions in developing economies. In 1817, David Ricardo, in his publication “The Principles of Political Economy and Taxation”, advocated for individuals, organizations, societies and countries to concentrate on producing and selling goods and services they have a lower opportunity cost of production relative to other market players, irrespective of whether they have an absolute advantage in the production of those goods and services or not.
On 30 October 1947, twenty-three (23) countries became signatories to the General Agreement on Tariffs and Trade (GATT), which became effective on 01 January 1948. The GATT was in force for 47 years before the World Trade Organization (WTO) was formed on 01 January 1995, created by the Uruguay Round Negotiations with 166 member nations (98%) of global trade regions then to address issues related to tariffs, trade, job creation, sustainable development and value addition.
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The United States of America (U.S.A.)’s spur to global leadership started as far back as the 18th century, when there were a lot of conquests and negotiations for a larger area. The 19th century was remarkable for America, as there was a paradigm shift from agriculture to more concentrated actions in manufacturing, technological innovation and industrialisation. The 20th century increased the U.S.A.’s influence and global relevance through victories from World War I and II despite its late participation.
This created opportunities for the dollar to serve as a reserve currency for several other countries and a more stable currency for international trade, as the U.S.A. had the largest gold reserve. The U.S.A. instituted the North Atlantic Treaty Organisation (NATO), a military alliance with Canada and other European countries, in 1949 to have more allies and provide military support in the post-war development of Western Europe. The U.S.A. facilitated the establishment of several conferences, such as the United Nations Monetary and Financial Conference (Bretton Woods Conference), which birthed the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF), the Liberal World Order and others.
China had a strong defensive network called the Great Wall of China, which took about 2,000 years to build, from the Spring and Autumn of 770 – 476 B.C. to the end of the Ming Dynasty, 1368–1644. Some of the sections of the Great Wall have been wiped out by wind erosion, weather changes, social changes and sand burial, such as the 10,000-kilometre wall of the Han Dynasty. The most visible structure of the Great Wall of China is the 5,000 kilometres built during the Ming Dynasty. These walls serve as defence structures and traffic, trade, and cultural exchange routes between China and other parts of the world.
China’s economic policies have primarily been of local dominance and were irrelevant to the global economy before 1979. 1979 onward was remarkable for China as it leveraged its resources and opened up to free-market reforms, foreign trade, and investments. It emerged as a nation with the fastest sustained growth and expansion of a developed country in recent times. The impact of this growth on China is the elimination of several million Chinese people from poverty. China has become a manufacturing hub and one of the largest investment hubs in the world. As of December 2024, only Japan has a larger share of U.S. treasury securities than mainland China. China strategically positioned itself to displace the US as the global economic leader.
The 47th president of the United States has been a great advocate of “America First” across trade, military, innovation, technology and other measures of global leadership. The last time the US had a trade surplus position was in 1975 at a value of $15.98 billion, while the last time China had a trade deficit position was in 1993 at a value of ($11.972 billion). Unknowingly, America is gradually losing its grip on trade and economic dominance to China. Over the last 46 years, China has transformed from a cheap labour country to a region with several million highly technical and skilful people through vocational education, industrial development, government support, private support and several positive local actors.
Donald Trump’s first time in office forced China to readjust its economic growth model, which is mainly focused on fixed capital investment, massive manufacturing, and exporting to other regions, to reflect more of creating increased opportunities for local consumption. This is structured to avoid diminishing economic growth from further expansion. There have also been concerns that China intentionally uses industrial policies to reduce its reliance on foreign technologies, goods and services to increase global trade dominance. China has become a hard nut to crack on international trade issues. Donald Trump’s proposition of the America First agenda on global trade is to reduce the influence of China and reposition America as a nation with a large trade balance in its trade relations with China and the world aggregate trade position.
The US incurred an expenditure of $1.31 trillion above the revenue it earned between October 2024 and March 2025; this is a $242 billion (23%) increase above the budget deficit for October 2023 and March 2024. Further analysis revealed that the US FY 2024 budget reflected a deficit of $1.83 trillion, as expenditure was $6.75 trillion while income was $4.92 trillion in the same period. Over the last 50 years, America has only recorded a budget surplus four (4) times, and the most recent period was in 2001 during the leadership of a Democrat, Bill Clinton. As the US has consistently operated on a budget deficit, there is a corresponding increase in the national debt, which has grown from $395 billion in 1924 to $35.46 trillion in 2024 in the last century. Since 2013, America’s debt-to-GDP ratio has been over 100%; the previous time the US attained such a high debt-to-GDP ratio was in 1948 at 96%. As of March 31, 2025, the analysis of the total US debt shows that 80% is due to the public, while 20% is due to intragovernmental holdings.
Contrary to the opinion of the current president that America has all the cards in trade wars, the persistent trade deficit and international borrowings revealed that the cards are made in other parts of the world, including China. An adjustment to the reality is an imposition of a maximum tariff of 10% within a 90-day pause on reciprocal tariffs with over 75 countries. The revisit and negotiation window could partly be attributed to the immediate liquidation experienced in the bond market, as in the US. The 30-year treasury yield declined to 4.3310%, the 10-year treasury yield declined to 3.9910%, and the two-year treasury yield declined to 3.4650%. There were also unexpected volatilities in the U.S. bond market as increased speculation that Japan and China, which have the most significant U.S. Treasury holdings, might be forced to sell them off immediately. Suppose the total foreign exposures to US debt, which account for 22% of total U.S debt, will be sold off immediately. In that case, an economic crisis will be too tricky for the US government to manage within the shortest possible time. America relies heavily on debt to finance its military, government expenditure, social relief programmes and public service. Mr Trump thinks that America and the world markets should be respected through other nations being open to negotiations rather than retaliation on the tariffs, as China responded. Elon Musk, one of the American president’s closest confidants, has advocated for zero tariffs between America, the European Union, and other parts of the world.
READ ALSO: US-China tariff war to push global debt past pandemic levels – IMF
The second round of the trade war between America and China will have a ripple effect on the global economy. Other countries and regions are cautious and watchful by not being on the bad books of China and the US. Some very insightful and challenging questions on the trade war between the U.S.A. and China are not restricted to:
Can the Chinese local market and other parts of the world accept the over $438.9 billion value of goods exported in 2024 from China to the United States?
What will the impact of the tariffs be on the $143.5 billion value of goods exported in 2024 from the United States to China?
How will the reduction in the United States’ goods trade deficit with China of over $295.4 billion in 2024 be managed in terms of economic productivity, employment, poverty level, and social level?
How will the tariffs impact major United States of America companies with large manufacturing and operational hubs in China?
How strong, potent and ready is the Chinese Yuan (CNY) to combat the United States Dollar (USD) as the world’s most traded and reliable reserve currency?
What opportunities are available for other reserve currencies, such as the EURO, yen, and pound, as well as alternatives to currencies like gold reserves?
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