Is Donald Trump serious about tariffs? This is a question hanging over not only global markets but the entire world of economics.
Popular wisdom had become that he wasn’t really that serious, and the main proof of that was his nomination for a hedge fund investor. Scott Besant as his Treasury Secretaryone is seen as moderate when it comes to tariffs compared to others whose names were put forward for the role.
The overnight response, though, was pretty brutal. Yes, he is serious, and in the most unexpected way. By selecting a target Mexico and Canada as well as Chinahe is confirming the threats made during the election campaign which at best appeared to be bogus.
For starters he’s ready to fly. The Mexico-Canada-US trade agreement he signed in his first term. On the first day of his second term.
What does Trump’s free trade deal mean now if the new White House is ready to slap tariffs on your country? Anyway?
And Important thingthe rationale for these measures is not primarily or even more about trade or economic policy. The tariffs are about forcing Mexico, Canada and China to change their policies on immigration and crackdown on illegal drugs.
Trump is using tariffs as a weapon of diplomacy, even coercion, on topics not entirely related to global trade.
Are the leaders of the G20 countries really going to roll over to win over the new president with their domestic audience?
They may choose to wait out the inevitable impact of Trump’s imposition of a 25% increase on the cost of two-fifths of US imports on US consumers and inflation.
The price of washing machines in the U.S. rose 12 percent, or about $86, after Trump imposed a 50 percent tariff on foreign-made machines during his first term. Such increases, however modest, run counter to Trump’s campaign promises to lower the cost of living.
But while Americans may be more susceptible to price increases now than they were in 2018, the political appetite for tariffs should not be underestimated.
Joe Biden criticized Trump’s tariffs on Chinese imports during his first term. But once in office himself, President Biden left those measures in place, even expanding them in targeted ways.
What is also clear is that Trump’s selection of Besant as Treasury Secretary will not affect the tariff push.
During the battle for his nomination he went out of his way to recognize the power of the tariff as a tool that had been pioneered by Alexander Hamilton himself, the first US Secretary of the Treasury.
But earlier this year he also suggested that while tariffs could be used strategically, the key tool to revive U.S. manufacturing would be a cheaper dollar.
Europe and the UK have survived for now. But it is important to reiterate that these measures are not even part of the actual tariff policy outlined by Trump.
He wants to fundamentally change the global economic map, and reduce China and Europe’s trade surplus with the United States, which he sees as “ripping America apart.”
The world is now far more complex, however, than these binary economic relationships. The US is undoubtedly powerful enough to start rebalancing global trade.
Push things too far, especially with the G7 and G20 allies, and the U.S. could find itself too isolated.