ECONOMYNEXT- US President Donald Trump said he is ordering a pause on ‘reciprocal’ tariffs slammed on SriLanka and other countries after 75 countries offered to negotiate, amid a collapse of stock markets, but a 10 percent tax would remain.
China would still be hit with a 125 percent tax, because the country dared to retaliate.
“Conversely, and based on the fact that more than 75 Countries have called Representatives of the United States, including the Departments of Commerce, Treasury, and the USTR, to negotiate a solution to the subjects being discussed relative to Trade, Trade Barriers, Tariffs, Currency Manipulation, and Non Monetary Tariffs, and that these Countries have not, at my strong suggestion, retaliated in any way, shape, or form against the United States, I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately,” Trump said in his Truthsocial.com platform.
“Thank you for your attention to this matter!”
Sri Lanka made a formal offer to negotiate in a virtual meeting on Tuesday and is also in the ’75-country’ club.
Stock markets rebounded.
“What I told yesterday is do not retaliate, you will be rewarded,” Secretary Scott Bessent told reporters.
“So every country in the world that wants to come and negotiate, we are willing to hear you. We are going to go down to a 10 percent baseline tariff for them. And China will be raised to 125 percent.”
President Trump is trying to solve a non-existent problem by claiming that the US trade deficit, which is a product of foreign investments in the US, is wrong in some way, as classical Mercantilists believed in the 17th century.
Similar beliefs are also found in other poor countries that cannot become export power houses including Sri Lanka.
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Former Treasury Secretary Larry Summers told CNN, that while the Trumps reversal was positive for markets, the US has been irretrievably damaged in partner countrys’ eyes.
Most countries would also become closer to China, as a result of Trump’s actions and foreign nations would also be more cautious about investing in the US, he said.
Trump is trying to run the US like a private company, but nations cannot be run like private firms because the public and the nation at lages, not just shareholders of that company alone, bears the cost of wrong decisions.
Trump was able to run the US like a private company due to the use of ‘executive orders’ which are like mid-night gazettes in Sri Lanka.
Trump ordered taxes without parliamentary approval, citing a law on national emergencies (International Emergency Economic Powers Act), violating a democratic principle called parliamentary consent and going back to ‘Royal Prerogative’ style action, critics say.
In addition to his mistaken beliefs, Trump also wants more revenue to get more revenue and fix public finances which were broken by repeated bouts of inflation and ‘stimulus’ unleashed by macroeconomists.
The 10 percent baseline tariff would get the government more revenue without having to slap more income tax, which destroys domestic savings and capital formation.
When the Fed Governor Ben Bernanke misled then Fed Chief Alan Greenspan to cut rates to bottom – claiming falsely, classical economists say, that the US was in Great Depression style deflation – America was running budget surpluses for the first time since the collapse of the Bretton Woods.
During the latter part of the Great Moderation prices of consumer goods and some services fell due to capitalist productivity growth, tech based outsourcing of services, which scared Bernanke, who was a scholar of the Great Depression.
The Fed ran an 8 year cycle, compared to its usual 4, firing housing and commodity bubbles, the collapse of which then led to more stimulus and persistent inflation after banks became stronger and private credit resumed.
Modern macro-economists operate on doctrine that the principle of sound money and that money should be a store of value and means of deferred payments – the bulwark of the industrial revolution, classical liberalism, democracy and individual freedom – is bad, and that there is salvation in inflationist-devaluationism.
Sri Lanka’s budgets were also shot in the early 1980s as the rupee was depreciated following the IMF’s Second Amendment which ended credible external anchoring of the rupee.
Since September 2022 however Sri Lanka’s central bank has maintained currency stability, undershot its excessive 5 – 7 percent inflation target which critics say can create social unrest like it did from 2016, and provided East Asia style deflationary policy for growth to resume. (Colombo/Apr09/2025)
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