Trump tariffs: Why US imposed tariffs on the penguin islands

Venture capitalist and entrepreneur, Chamath Palihapitiya, said that while it might be fodder for memes, the tariffs on the penguin islands are not without rationale. US President Donald Trump imposed a 10 per cent tariff on the Heard and McDonald Islands, which are Australian territories located deep in the Southern Ocean. The islands are inhabited by only penguins and seals. 

Speaking in a podcast with Andrew Schulz, Palihapitiya said a lot of memes were made about how this country has only got penguins and how this other country is in the middle of nowhere. “Here's a really important thing to understand what has happened over the last 25 years every single time anybody has tried to fix these (trade) imbalances. What companies were able to do was just to go to a different country that wasn't affected and basically mule their way into America,” he said, adding that if the US levies taxes on every single country, no company would be able to do that anymore.

“It seems like an imbalance when you throw it on Lesotho but you're really doing it as a preemptive measure so that all the manufacturing doesn't go from Cambodia to Lesotho overnight,” he said. Trump imposed a 50 per cent tariff on Lesotho. 

“It's not like they're (companies) going to build a factory there right. They may just use it as a way station. You know the plane lands, hop skip and a jump, and now you get a form that goes made in Lesotho. You make it in China, send it to Lesotho, we buy it from Lesotho, there’s no tariff on Lesotho,” Palihapitiya said.

“The specific thing that really happened that exposed this was in COVID and just a little bit before Mexico became like an enormous way to kind of work around a bunch of the Chinese tariffs. You would just basically send the goods to Mexico. They would do what's called ‘self attestation’, which is basically saying ‘yeah it's made in Mexico’. Then you get under a totally different regime and you avoid a lot of taxes and other stuff. I think what they were trying to do is basically hit the pause button and make sure that there are no loopholes,” he said.

Commerce Secretary Howard Lutnick earlier explained it to CBS News in a similar manner. "The idea is that there are no countries left off. What happens is, if you leave anything off the list, the countries that try to basically arbitrage America go through those countries to us."

"The President put tariffs on China in 2018 — and then what China started doing is they started going through other countries to America," he said. When asked if imposing tariffs on Heard Island was a mistake, since it does not have any major shipping lane, Lutnick said Trump does not want to let any part of the world be a place “where China or other countries can ship through them”.