US president Donald Trump just announced the first of a new wave of large tariffs. Together, these moves have sent shockwaves through global markets and triggered a wave of risk aversion. Amidst ongoing trade negotiations, Trump has implemented tariffs on several countries, including Canada and Brazil, while reaching a trade deal with the European Union (EU) that has drawn criticism from various European leaders. As the August 1 deadline ushered in the new tariffs’ impact, the ramifications continue to shake out across the financial landscape.
Trump made moves to address damaging trade inequities and provide greater protection for American industry. He even signed a 90-day extension on import tariffs from Mexico to allow for more talks. Even that announcement got lost in the gaudy headlines when the administration decided to slap aggressive tariffs on the rest of the world. For the moment, Canada faces a daunting 35% tariff on its exports to the US. At the same time, Brazilian imports should be subject to a harsh 50% tariff to punish the anti-competitive actions of the Brazilian administration.
Unprecedented Tariffs and Global Response
Yet, the recently announced tariffs have spurred fears about their negative effects on worldwide economic growth. Trump’s massive tariffs are designed to retune trade relationships and shield American industries. Taken together, these actions have created the impression, or perhaps even the intent of, provocation—feeding fears of increasing trade wars. Their response was dramatic, as the financial markets did. Stock prices tanked as investors found it difficult to see through the fog created by all these trade actions.
In this context, as the week played out, equity markets held on to deep losses due to tariff concerns. Analysts noted the sudden wave of risk aversion was a direct result from Trump’s tariffs announcement. This triggered a huge fall in prices, just ahead of the weekly close. The prospect of future negotiations and possible retaliatory actions by countries that would be impacted added enormously to investor anxiety.
With an August 1 deadline for the new tariffs to go into effect, the tensions pointed to a boiling point in international trade relations. From the day that the tariffs were first proposed, members of their supply chain braced for the worst. They expected huge impacts on global supply chains and economic growth. Numerous experts cautioned that these tariffs would increase costs to consumers. They acknowledged the potential for this to stifle economic activity and make our already precarious global economy even more so.
Trade Deal with the EU
Trump’s totally unexpected announcement. In his speech, he announced a substantial trade deal with the European Union, aimed at soothing post-Brexit quarrels between the two economic superpowers. Under this new deal, the 15% tariff will remain in place for most EU exports coming into the US. Furthermore, the agreement lays out demands for more EU investment in American manufacturing, technology, clean energy, agriculture and other sectors.
Although it was supposed to bring all these benefits, European leaders were outraged and vocally opposed to the agreement. German Chancellor Friedrich feared that the tariffs would do “considerable damage” to both economies. At the same time, French Prime Minister François Bayrou called the situation a “dark day” for the EU. In many ways their reactions demonstrate the divisions and frustrations that lie all too close to the surface in transatlantic relations today.
The new trade deal – the Comprehensive Economic and Trade Agreement (CETA) – reduces or eliminates tariffs on nearly all EU exports. It does maintain the damaging 50% tariff on European steel, aluminum and copper imports. This status quo protectionism signals that, despite some hard-fought concessions made through negotiations, many roadblocks to true market access still dominate.
Repercussions and Future Outlook
The long series of escalating tariff announcements has shaken international relations. It has further ignited a fiery comeback from none other than Trump himself. First, there’s President Trump’s longstanding call for lower interest rates. Yet his most recent acts have once again emboldened his calls for a more accommodative monetary policy from the Federal Reserve. Market analysts speculate that these developments could influence future Fed decisions as they consider the broader implications of Trump’s trade policies.
Countries such as Brazil and Canada are already preparing for the economic repercussions of these tariffs. At the same time, businesses and investors are living under a shadow of uncertainty. Retaliatory measures are coming down the pike. Most people project that the countries impacted will retaliate with their own tariffs, further ramping up tension and complicating international trade relations even more.
As negotiations are still ongoing, the risk of a return to a full-blown trade war looms large. The dramatic turn of events illustrates the difficulties in today’s increasingly frayed trade ties. It uncovers the sensitive balance of interdependencies that bind countries together in our ever-globalizing economy.