Trump, tariffs and other disruptions

It started as political drama pitting a former president against a sitting president who gave way to his deputy in a high-stakes political gamble. President Trump won a second term and now has political capital to spend.

We thought the US election was a Democratic Party versus Republican Party affair. The results are reverberating beyond the borders; we are feeling it here at home and in many ways.

One is through tariffs. One could ask why tariffs are targeting Mexico, Canada, Mexico and China, with the threat to the UK and EU. Why no tariffs on Kenyan goods? It’s simple; tariffs or threat of tariffs are tools for negotiations. Since we trade with China, US, EU and other countries, tariffs will affect us indirectly.

If prices rise in any country because of tariffs that could lead to less demand for our exports. If these countries impose tariffs on US goods that could lead to less global trade, we shall feel the squeeze. As they say, when elephants fight, the grass suffers. We are the grass. Why do tariffs on services rarely feature in these discourses?

It gets tricky when tariffs or threats of tariffs are used to influence policy changes such as stopping the inflow of drugs or immigrants across the US borders. America could use the tariffs or threat of tariffs if they want something from us.

Tariffs have an economic purpose, to bring manufacturing jobs home. This has political dividends with more voters leaning toward the party that creates jobs. Bringing jobs onshore can only take time, over a long period of time.

It also requires American firms to become more efficient. Remember lower costs in other countries has driven outsourcing, with lots of American firms playing the game.

Could tariffs have unintended consequences; could China and other countries shift their trade to other more ‘friendly’ countries? Could the countries be suffering from US tariffs gang together?

Trump postponed tariffs on Mexican and Canadian goods by a month. That will give them more time to negotiate. But the postponement also shows his policy has limits, other countries are fighting back.

There is another reason why US could be ruthless in using tariffs—she is not great on trade. Selected data seems to support that. An easy measure of a country’s trade is getting her imports plus exports as a percentage of GDP. The higher the ratio, the more the trade.

For the US it was 25 per cent in 2023. For Singapore, it was 311! China was 37 per cent, Kenya 32 per cent. Others include Japan at 45 per cent, EU at 22.5 per cent, Mexico at 90 per cent and Canada at 67 per cent. You can see why the reaction by Mexico and Canada was so spirited.

Trump’s other focus in his disruption streak is foreign aid. Lots of US foreign aid is channelled through the US Agency for International Development (USAID). The original intention was to make USAID semi-autonomous and cut through bureaucracy. It was important to use the US soft power in the Cold War to reach the hearts and minds of citizens of other countries through humanitarian work. Remember the Peace Corps?

Why is Trump so focused on cutting foreign aid? One, it’s popular among his voters who feel too much money goes to helping the rest of the world at the expense of American voters. It’s only about one per cent of US GDP but most Americans think it’s more than that.

Cutting aid would make others notice American power and influence. Hope this outweighs unintended consequences. Foreign aid is an industry by itself with lots of jobs along the supply chains, cutting it off will lead to job losses.

Kenya is no exception. A lot of the aid goes to health, particularly diseases such as malaria, TB and HIV-Aids. Many of our programmes have a donor component. Add our budgets at both county and national levels.

Some argue cutting foreign aid will make us move towards self-sufficiency, less waste and self-confidence in the long run. It will force the government to take up its responsibility. Reducing foreign aid could force political changes as regimes feel threatened, more so when aid goes to the most vulnerable and politically risky groups. Remember the foreign aid cut-off during the Kanu era? Kibaki era?

Trump’s disruption goes beyond tariffs and foreign aid. These two are for the domestic audience. He has also tried to end birthright citizenship, recognise only two genders, reduce programmes on diversity, equity and inclusion (DEI), and roll back measures to mitigate climate change, among other executive orders.

His disruptions have been felt beyond the borders. He has talked of “owning “Gaza Strip, Greenland and the Panama Canal. When is he ending the war in Ukraine? Making America great again (Maga) is a work in progress. Did I hear there is a plan to make Kiambu great again?

Why is Trump back in South Africa, talking about some farmers being treated badly? Is that a whisper from Elon Musk who was born in South Africa? Who else is whispering to him?

Beyond jobs to be lost if Trump succeeds in pulling the plugs on foreign aid and increasing tariffs, our humanitarian mission in Haiti could be affected. The reaction to Trump’s attempt to reduce foreign aid shows how addictive it is.

The US has used soft power espoused by foreign aid to advance American interests. What will Trump use, yet he does not want foreign wars? Will someone else, read China, fill the void? Shall we soon start hearing of Chinese NGOs?

What we can’t deny is that Trump’s disruptions have finally reached home. Are we ready for them? Did we prepare for them?