Yet Donald Trump has disrupted global trade once again. On June 15th, he unveiled his first tirade of tariffs, sending markets into a frenzy. The previous administration had imposed a punishment of an exorbitant 40% on imported goods transshipped. This ruling comes at a critical time, with the US and China in the midst of negotiations over a new trade agreement. This new move is a prime example of Trump’s habit of trumpeting new decisions at 3am on Twitter, leaving companies and countries alike scrambling.
In just a few short years, Trump’s approach to trade has completely upended what we thought we knew about global commerce. His recent imposition of major tariffs—most notably a broad-based 10% increase in April—has introduced doubt into global markets. Analysts are questioning the sustainability of a global economy that must adapt to sudden changes in policy from one of its most influential players.
Also relevant is the timing of Trump’s 40% tariff on goods transshipped through the US. To announce it right as negotiations with China were about to get started strains credulity among trade experts and policymakers on both sides of the aisle. Stephen Olson, Senior Visiting Fellow at ISEAS – Yusof Ishak Institute and a former U.S. trade negotiator, commented on Trump’s impact on global trade.
“Trump has fundamentally rewritten the rules of global trade.” – Stephen Olson
Since taking office, Trump has used unusual methods to shape trade relations. He has threatened repeatedly to walk away from established pacts, most notably the North American Free Trade Agreement (NAFTA). That will be true unless Canada and Mexico are willing to accept tougher conditions. These strategies have led to significant tariff increases. Take for example a super-protectionist 39% tariff on Switzerland, despite the near absence of bilateral trade tension.
No doubt Trump’s strategies have the appearance of being all over the place, but results-wise they’ve worked—at least in Trump-world. His nightly twitter storms have been an unknown factor for businesses and governments trying to compete and play by the rules of international trade. Now, businesses need to be ready at any moment for major changes in policy direction.
Beyond the recent 40% tariffs, last week Trump signed an executive order moving a tariff deadline to August 1. This delay has provided some space for negotiation but has contributed to the overall uncertainty of the trade environment. Throughout the negotiations, analysts indicated that Trump’s deadlines were anything but set-in-stone, frequently moving as a result of the ever-changing landscape of negotiations.
Holger Schmieding, Chief Economist at Berenberg Bank, pointed out that Trump’s punitive tariffs focus on countries still yet to settle. These tariffs are an essential element of his art of the deal playbook to shift leverage in negotiations.
“The high rates on some countries which have not reached a deal with Trump yet are indeed mostly part of Trump’s scare tactics. I expect many of them to be reduced after negotiations. Trump’s deadlines are very flexible, after all.” – Holger Schmieding
This unpredictable use of tariffs has created turmoil in global markets, causing the markets to be jumpy. Amid the downturn, investors are growing more skittish. They have to find their way through an environment where tariffs can be imposed at any time. The uncertainty surrounding Trump’s trade policies raises questions about whether the global economy can function effectively when its rules can change overnight.
Rather than merely undermining relations with key allies, Trump’s erratic and reckless trade tactics have led to fears of far-reaching economic consequences. Countries around the world are reeling from this new paradigm. They have to learn how to deal with an unpredictable, unreliable trading partner like the United States.