In a move that has sent shockwaves through the global economic community, the incoming US President Donald Trump proposed the establishment of an External Revenue Service (ERS). The ERS aims to collect tariffs, duties, and revenues from foreign sources, aiming to ensure the US gets its “fair share” from international trade. However, experts warn that this move could have far-reaching implications for the global economy, threatening to disrupt trade flows, spark retaliatory measures, and undermine the rules-based international trading system.
According to Donald Trump, the US being the world’s biggest market deserves to benefit more from its trade transactions with other countries who are exploiting the huge US market to enrich themselves while the US is left with the short end of the stick and has to constantly has to grapple with trade deficits in their transactions with these foreign countries.
The ERS is an agency that would be responsible for collecting revenues from foreign sources, including tariffs, duties, and other levies. The agency would be established through an executive order, bypassing Congressional approval. According to the Trump administration, the ERS would help to reduce the US trade deficit, which stood at $576 billion in 2020.
The ERS is also part of Trump’s broader plan to impose tariffs on imports, particularly from China, and potentially replace income taxes with tariffs. However, many experts warn that these policies could end up harming the American economy while reducing its trade transactions with other countries.
While there seems to be some overlap between the functions of the US Customs Service and the proposed ERS, the ERS is expected to have a narrower scope and focus primarily on revenue collection from foreign sources.
The establishment of the ERS could have significant implications for global trade. By imposing additional tariffs and duties on imports, the US risks sparking a trade war with other countries. Retaliatory measures could lead to a sharp decline in international trade, hurting businesses, consumers, and economies around the world.
Moreover, the ERS could undermine the rules-based international trading system, which is governed by the World Trade Organization (WTO). The WTO has established clear rules and procedures for the imposition of tariffs and trade restrictions. By establishing the ERS, the US may be seen as circumventing these rules, setting a dangerous precedent for other countries to follow.
The implications of the ERS for the global economy are far-reaching. A trade war sparked by the US could lead to higher prices for consumers as a result of the additional tariffs and duties imposed by the US thus reducing demand and slowing economic growth. A decline in international trade could also hurt businesses that rely on imports, leading to job losses and economic contraction.
Already the proposed establishment of the ERS is creating uncertainty for businesses and investors as no one is certain of the full implications of the operations of the ERS thus making it harder for them to make decisions about investments and trade. While there is also the likelihood that other countries might respond to the ERS with higher tariffs which will spark off a trade war that could lead to a global economic slowdown, hurting economies around the world.
The proposed External Revenue Service is an attempt to address the US trade deficit. However, by imposing additional tariffs and duties on imports, the US risks sparking a trade war that could have far-reaching implications for the global economy. The US administration must reconsider its approach and work with other countries to address trade imbalances and promote free and fair trade. The world cannot afford a trade war, and it is up to leaders to find a more constructive way forward.
Oshobi, a development economist, management consultant, and author writes from Lagos, Nigeria