Is there a game plan behind Trump’s reciprocal tariffs or is it msde on the fly?
Watching President Trump unveil the reciprocal tariff details my initial reaction was …, Holy crap! It felt like a nuclear bomb hit the global trading order.
I said to myself “WTF.” 20% on the EU,34% on China, 26% on India, just to name a few. This was in addition to the 25% steel, aluminum and auto tariffs.
Then I saw this headline and it got me to thinking about what is the Trump game plan?
Earlier indications were that the reciprocal tariffs were to go into effect immediately. Now it appears they will not be kicking until April 9.
Why is there a delay?
Given the size of the reciprocal tariffs and the delay in implementing them could be taken as a sign the White House is leaving open a window to negotiate. What I mean by negotiate is for a country to lower tariffs on U.S. goods in return for lower reciprocal tariffs.
I recall seeing Commerce Secretary saying it might take months until the full effects of the reciprocal tariffs is known. I took this as a sign that there may be more to just the initial details.
What complicates this approach would be how to treat non-monetary barriers, which were part of the reciprocal tariff calulation (e.g. VAT), I will leave this issue to the trade negotiators.
So, what is the tariff game plan?
1) Should the reciprocal tariffs be taken at face value in order to levek the playing field and bring back manufacturing to the U.S.?
2) Is the goal to force U.S. trading partners to lower their tariffs?
Logic says #2 is the desired goal. Lower your tariffs on U.S. exports or face punitive import tariffs.
On the other hand, if they are serious about #1, then expect this to drag out as a cloud over the economy.
The U.S. is not the only player in this game
As I have been noting, in this high stakes game there is always the risk of unintended consequences.
In this case it means the risk that reciprocal tariffs leas to retaliation that escalates into a trade war. In this regard, China and the EU have already threatened retaliation.
The risk here is heightened by a president who tends to shoot from the hip with threats when someone pushes back. Remember the last time the EU threatened to retaliate? Trump responded with a threat to impose a mega tariff on French wine.
The world of Trump
Logic does not always work in the world of Trump. The risk of rising prices and the impact on the economy have raised recession fears along with the risk of retaliation and a trade war. This is being reflected in the cratering of stocks after the announcement. Comments like these will not restore confidence, at least in the short-run.
Meanwhile, looking at the initial reaction in markets it is hard to have much confidence in the Trump game plan. With that said, I have to believe there is more to this story. I sure hope the game plan goes beyond just bullying trading partners into submission
Add comment
You must be logged in to post a comment.