Since as­sum­ing of­fice on Jan­u­ary 20, Pres­i­dent Trump has up­end­ed the in­ter­na­tion­al or­der and made the world more un­pre­dictable. In­creas­ing tar­iffs on Mex­i­co and Cana­da does not in­val­i­date the 2020 Unit­ed States-Mex­i­co-Cana­da Agree­ment, which re­placed the North Amer­i­can Free Trade Agree­ment (NAF­TA). How­ev­er, it vi­o­lates the spir­it and terms of the agree­ment, which was in­tend­ed to elim­i­nate most tar­iffs and trade bar­ri­ers be­tween the coun­tries.

Hav­ing paused the im­ple­men­ta­tion for 30 days, on Feb­ru­ary 10, he an­nounced the im­ple­men­ta­tion of tar­iffs on all steel and alu­mini­um im­ports, rais­ing them from ten per cent to 25 per cent with ef­fect from March 12. These ap­pear to be on­ly the first steps.

On Feb­ru­ary 13, Pres­i­dent Trump di­rect­ed his ad­vis­ers to come up with new tar­iff lev­els that con­sid­er trade bar­ri­ers and oth­er eco­nom­ic ap­proach­es adopt­ed by US trad­ing part­ners. This has set in mo­tion a plan for new tar­iffs on oth­er coun­tries glob­al­ly, an am­bi­tious move that could shat­ter glob­al trad­ing rules and is like­ly to set off fu­ri­ous ne­go­ti­a­tions.

Al­ready, the prime min­is­ters of In­dia and Japan have vis­it­ed Pres­i­dent Trump. This is a dra­mat­ic over­haul of the glob­al trad­ing sys­tem de­vel­oped over the last 60 years. Tar­iffs have been set by ne­go­ti­a­tion (whether bi­lat­er­al­ly or mul­ti­lat­er­al­ly) with­in the frame­work of the World Trade Or­gan­i­sa­tion (pre­vi­ous­ly GATT).

The WTO frame­work is built on the most favoured na­tion prin­ci­ple, mean­ing that what­ev­er mem­ber A agrees with X ex­tends to all mem­bers. What is now be­ing pro­posed is one that is de­ter­mined sole­ly by US of­fi­cials based on their own cri­te­ria.

What is be­ing pro­posed is a uni­lat­er­al in­crease in tar­iffs, coun­try by coun­try, prod­uct by prod­uct. Ap­ply­ing dif­fer­ent rates to dif­fer­ent coun­tries vi­o­lates the “most favoured na­tion rule,” de­stroy­ing the prin­ci­ple of non-dis­crim­i­na­to­ry treat­ment. Fur­ther, if the US rais­es tar­iffs be­yond the max­i­mum rate it has ne­go­ti­at­ed with oth­er trade part­ners, that would al­so vi­o­late WTO rules, in ef­fect de­stroy­ing the ba­sis of a rules-based trad­ing sys­tem that has de­vel­oped since 1947.

To say that this is alarm­ing is to put it mild­ly. If the US is suc­cess­ful in mak­ing this change, it would rep­re­sent a re­turn to the era of mer­can­til­ism and the neg­a­tives as­so­ci­at­ed with that de­vel­op­ment. By mer­can­til­ism, we mean that a coun­try seeks to ob­tain pos­i­tive trade bal­ances with all of its part­ners. This is achieved by pro­tec­tion­ism through tar­iffs or its neg­a­tive list.

We can in­fer that Trump sees tar­iffs as hav­ing a mul­ti­pur­pose ef­fect. First, it is a co­er­cive de­vice to bring trad­ing part­ners to the ne­go­ti­at­ing ta­ble. Sec­ond, as a form of eco­nom­ic pro­tec­tion for do­mes­tic in­dus­try. Third, as rev­enue-rais­ing de­vices. These are all im­por­tant in the larg­er ex­er­cise of “mak­ing Amer­i­ca great again.”

In this for­mu­la­tion, the Eu­ro­pean Union, Chi­na and any oth­er po­ten­tial peer com­peti­tors need to be brought to heel. Trade and the size of the US econ­o­my are weapons that dy­namise the im­por­tance of tar­iffs.

In this con­text, trade and for­eign pol­i­cy are two sides of the same coin. This is ex­em­pli­fied by the com­ments on the EU’s need to in­crease its mil­i­tary spend­ing and for NA­TO to be­come self-re­liant. This is but­tressed by Pe­ter Hegseth’s (US Sec­re­tary of De­fence) com­ments on the Ukrain­ian sit­u­a­tion last week, say­ing that Ukraine will have to lose ter­ri­to­ry to end the war with Rus­sia.

These are ear­ly days, and coun­ter­mea­sures are yet to be ful­ly for­mu­lat­ed by Chi­na and the EU. Glob­al­i­sa­tion has meant that sup­ply chains are in­te­grat­ed across coun­tries, and it will be dif­fi­cult to quan­ti­fy the trade-offs im­plied by Trump’s new pro­pos­als.

Why is this im­por­tant, and what does it mean for a small is­land de­vel­op­ing state such as T&T? First, the US po­si­tion sug­gests that trade agree­ments do not mat­ter. If the US is pre­pared to rip up its trade agree­ments with Cana­da, Mex­i­co, and the EU, then why would T&T mat­ter? Sec­ond­ly, T&T’s ne­go­ti­at­ing lever­age is weak as its ex­port vol­ume is not large enough to mat­ter in a trade war with the US.

T&T does run a bal­ance of trade sur­plus with the US, which is im­por­tant to T&T, though rel­a­tive­ly small in the scheme of things. Iron­i­cal­ly, the prod­uct that has been the start­ing point of this lat­est tar­iff is­sue is steel. IS­COTT, T&T’s steel pro­duc­er at the heart of its di­ver­si­fi­ca­tion ef­fort in the 1980s, was a vic­tim of the US ef­fort to pro­tect its de­clin­ing steel in­dus­try. The US ar­gued that IS­COTT was sub­sidised and im­posed coun­ter­vail­ing du­ties. That episode did not work well for T&T.

Now that Rus­sia is sub­ject to sanc­tions, T&T has be­come the world’s largest ex­porter of am­mo­nia by vol­ume and val­ue through the Point Lisas’ plants. Many of these plants are owned by US cor­po­ra­tions, who may ob­tain some re­lief if our trade sur­plus at­tracts US at­ten­tion.

LNG is dif­fer­ent as the US is a net ex­porter, and we could be deemed to be a com­peti­tor. But these pre­lim­i­nary thoughts ad­dress keep­ing what we have if things get com­pli­cat­ed on the trade tar­iff front. A key is­sue re­mains our re­la­tion­ship with Venezuela and whether US sanc­tions will af­fect the Drag­on gas deal. Sur­vival de­mands that we adapt and repo­si­tion.

Mar­i­ano Browne is the Chief Ex­ec­u­tive Of­fi­cer of the UWI Arthur Lok Jack Glob­al School of Busi­ness.