Is Trump Serious About Tariffs?
The question of whether Donald Trump is truly committed to imposing tariffs has been a topic of speculation, not just in financial markets but across the global economic landscape. The prevailing belief was that his threats were not to be taken seriously, especially with the appointment of Scott Bessent, a hedge fund investor known for his moderate stance on tariffs, as his Treasury Secretary.
However, Trump’s actions have provided a stark answer. He has confirmed his willingness to target not only China but also Mexico and Canada with tariffs, echoing his campaign promises that once seemed far-fetched.
The New Approach to Trade
Trump’s strategy suggests a willingness to disrupt the Mexico-Canada-America trade deal he signed during his first term, questioning the very essence of what a “Trump free trade deal” might entail if his administration is prepared to impose tariffs on allied nations.
Importantly, these tariff decisions are not primarily about trade or economic policy. Instead, Trump is using tariffs as a tool of diplomacy, or even coercion, to pressure Mexico, Canada, and China to change their policies on immigration and illicit drugs.
Global Reactions
The question arises: Will leaders of G20 nations, with their domestic constituencies to consider, simply capitulate to give Trump a political victory? They could choose to wait out the impact of Trump’s proposed 25% tariff increase on US imports, which would undoubtedly affect US consumers and contribute to inflation.
The cost of washing machines in the US, for example, rose by 12% or about $86 after Trump imposed a 50% tariff on foreign-made machines during his first term. Such price increases, even if modest, contradict Trump’s campaign promises to lower the cost of living.
Despite potential public sensitivity to price rises, the political appetite for tariffs should not be underestimated. Joe Biden criticized Trump’s tariffs on Chinese imports, yet once in office, he maintained and even expanded them in targeted ways.
The Role of Bessent
Trump’s choice of Bessent as Treasury Secretary does not appear to moderate his tariff agenda. During his nomination battle, Trump emphasized the effectiveness of tariffs, a tool pioneered by Alexander Hamilton, the first US Treasury Secretary. However, he also suggested that while tariffs might be used tactically, a cheaper dollar would be the main instrument for US manufacturing revival.
Global Economic Implications
While Europe and the UK have been spared for now, it’s crucial to understand that these actions are just the beginning of Trump’s broader tariff policy. He aims to fundamentally reshape the global economic landscape, reducing China and Europe’s trade surpluses with the US, which he sees as “ripping off America.”
Yet, the world is far more complex than these simple economic relationships. The US has the power to rebalance world trade, but pushing too far, especially with G7 and G20 allies, might lead to significant isolation.
