- By: Dr Elif Selin Calik
Tariffs implemented by President Donald Trump will lead to significant changes in global trade dynamics and energy market conditions.
The recent announcement by President Donald Trump regarding 10 per cent tariffs on Chinese goods and proposed 25 per cent tariffs on Canadian and Mexican imports has generated extensive conversations about their potential consequences for global trade and energy markets. Analysts believe that tariffs will minimally affect oil exports but regions dependent on energy trade continue to worry about economic impacts.
- Tariffs and their historical context
Economic strategy historically makes use of tariffs to shield domestic industries and address trade imbalances. Adam Smith in “The Wealth of Nations” cautions against heavy dependence on tariffs by saying that allowing domestic industry monopoly access to the home-market directs private citizenship on how to use their capital investments.
Paul Krugman states in “The Return of Depression Economics” that protectionist policies frequently result in unintended economic outcomes, such as increased prices and retaliatory actions from trading partners.
- Immediate impact on energy markets
Oil and natural gas markets function amidst a sophisticated global system of supply and demand interactions. The impact of tariffs reaches energy markets through economic slowdown which alters energy consumption patterns. According to Daniel Yergin in The Prize: The book The Epic Quest for Oil, Money & Power reveals how oil stands as the globe’s most strategic resource with its price determined by geopolitical forces alongside supply and demand conditions.
The US produces large amounts of oil and gas but tariffs on Canadian and Mexican energy imports from its main energy trade partners could disrupt its supply chain efficiency. The United States receives Mexico’s crude oil exports while sending back refined gasoline products in exchange. When this flow experiences a disruption, American consumers and industrial sectors will face rising fuel costs.
- Stock market reactions and investor sentiment
The tariff announcement prompted immediate investor responses especially from emerging markets and economies highly dependent on energy. The main stock markets throughout the Gulf region saw losses, while Saudi Arabia’s primary stock index dropped 0.3 per cent. The market decline signifies wider investor apprehensions about upcoming global economic decelerations.Investor sentiment plays a crucial role in economic stability according to John Maynard Keynes in “The General Theory of Employment, Interest, and Money” because he states that “markets are driven by expectations as much as by fundamentals.”The potential for a trade war arises from countries responding to imposed tariffs with their own retaliatory measures.
A major risk associated with tariff imposition is the possibility of receiving reciprocal trade actions. China, together with Canada and Mexico, are expected to introduce reciprocal tariffs which may lead to a full-scale trade war. As Ha-Joon Chang notes in Bad Samaritans: Protectionist economic measures typically result in retaliatory actions from other nations which creates a detrimental economic situation affecting all countries.
Should China decide to apply restrictions on American energy imports as retaliation it would redirect its oil and gas procurement towards new suppliers including Russia and the Middle East. The potential realignment of energy markets would create enduring geopolitical and economic effects while particularly impacting US energy exporters who have recently profited from Chinese demand.
- The energy transition and long-term implications
Trade restrictions produce effects that extend beyond short-term disruptions by initiating enduring changes in energy market dynamics. Tariff implementation could speed up the worldwide movement to adopt renewable energy systems. As Jeffrey D. According to Sachs in The Age of Sustainable Development economic disruptions can trigger nations to move towards sustainable energy systems as they try to minimise reliance on unstable supply networks.
- The road ahead
President Trump’s tariffs will not cause immediate changes in global energy markets but their wider economic effects should be taken into account. Trade restrictions have generated unintended consequences throughout history, including higher prices and retaliatory trade actions. Energy trade disruptions trigger widespread effects that impact stock markets and shape future energy transitions.
Historical evidence demonstrates that protectionist policies consistently lead to significant costs. Policymakers need to proceed with caution as they navigate between economic nationalism and the interconnected nature of today’s global economy. Adam Smith, Keynes, and Yergin’s teachings show that although immediate benefits can be realised through trade disruptions, their lasting effects necessitate thorough analysis.
- Courtesy: Middle East Monitor