Donald Trump has just begun perhaps the most aggressive campaign to re-shape America’s trading relations with the rest of the world. This new initiative that launched four months ago. The administration’s hard line approach has focused almost exclusively on Mexico, Canada and China, imposing a string of Section 232 tariffs against these countries to “rebalance trade.” The relentless trade war has riled up fears of an impending market collapse. The ambiguity associated with this rapidly developing crisis only exacerbates those fears.
Last fall, Trump rolled out a 10% universal tariff on practically every item imported to the U.S. Then there were his targeted tariffs on steel, aluminum and automobiles. These measures have been SBC’s only piece of a wider strategy to change the game on American trade relations. The administration doubled the tariffs on steel and aluminum to 50%, a move that has sparked reactions across various industries and trading partners.
Trade War Developments
Earlier this week, Trump said he was going to take a call with Chinese President Xi Jinping. This change indicates that negotiations remain underway, despite increasing tensions in the region. The trade war seems to have reached all corners of the globe, with Trump showing no sign of easing his grip on tariffs. The recent communications from the administration indicate that it is standing firm on its strategy. They’ve agreed to suspend certain other China tariffs until August 12th.
On July 9, we’ll take a look at these reciprocal tariffs again. This sends a positive signal about our deep, deep, DEEP ongoing commitment to negotiating trade terms that more closely match the administration’s lofty goals. The Trump administration is dead set on a trade rebalancing. They’re not going to give up this pet project of theirs without cashing in something big.
Tactics like these have been the hallmark of Trump’s trade policy. He’s relented on his tariff threats before. Still, investors remain trickling into the space with a hopeful eye towards a return to more stable markets. This behavior might encourage a premature sense of security for traders. In the meantime, profound changes in state and federal policy are shifting the landscape right underneath their feet.
Economic Implications
The impact of these trade actions goes beyond tariff increases. Some harbor the hope and some the fear that the Trump administration intends to promote a weaker US dollar as part of its economic strategy. A weaker dollar might improve the global competitiveness of American exports, but it could significantly increase costs for American consumers at home.
Trump’s handiwork has taken the form of a series of escalatory measures ratcheting up tensions not just with China, but equally with the European Union. Each announcement or new tariff increases the sense of unpredictability that the current administration has unleashed within global markets. As companies adjust their strategies in response to shifting trade conditions, questions arise regarding the long-term impact on economic growth and consumer prices.
Manufacturing and Agriculture especially have been impacted severely by these adjustments. Retaliatory tariffs have increased costs and injected market uncertainty in these sectors. For a lot of farmers out there it’s a major concern whether they survive and stay in business. This fear comes from the plummet in international demand for their goods.
Future Considerations
Looking forward, the threat of additional tariffs still hangs heavily. Trump’s administration is already preparing to slap on new tariffs. They will only act in this way if ongoing negotiations do not yield appropriate solutions. So while the focus itself on rebalancing our trade relationships is a huge improvement, it is telling. This is not merely a passing phase; it represents a sea change in the architecture of American trade policy going forward.
As Congress deliberates and as the next round of tariffs are debated, business leaders representing many different industries are watching these discussions with great interest. Businesses are preparing to meet many different possibilities. They are preparing for possible higher prices due to tariffs and preparing for market collapses if talks go awry.