Donald Trump has long declared a “tariff man” ready to impose comprehensive taxes on imports from countries that have damaged America.
But on Saturday, the 78-year-old US president took the first dramatic step of his second term towards the visit of this vision-setting up trade wars and economic nationalism at the head of his agenda.
From his wealth at Mar-A-Lago in Florida, Trump issued new aggressive tariffs for imports from Canada, Mexico and China, a day after threatening the EU with high taxes.
Trump is fortunate that he can press on US trading partners to respect Washington’s wishes without causing another harmful acceleration of inflation, at a time when the cost of living remains the main concern of many Americans.
For the world, Trump’s opening in trade means that a series of countries will be forced to negotiate everything, from trade deficits and currency policy to immigration and even America’s new desire for territorial expansion. Financial markets can be shaken and the global economy can suffer.
“These fees herald a new era of American trade protectionism that will affect all American trade partners, whether rivals or allies, and will significantly disrupt international trade,” says Eswar Prasad, a professor at Cornell University.
The most striking economies will be Mexico and Canada, given their heavy confidence in the US economy, with both faces fair recessions if Trump holds 25 percent tariffs, economists said. The damage will be complicated by the fact that less than six years ago, those countries signed a new trade agreement with Trump in the hope that it would stabilize relations with the US
“There is no safe refuge,” says Brad Setser, a former US Treasury official now at the Foreign Relations Council. “Two countries that hit the largest trade agreement with Donald Trump in his first mandate are the first two to be hit with tariffs.”
Neil Shearing, the group economist at Capital Economyics, said the macroeconomic effects would depend on how comprehensive the US tariff package was and how fast it is imposed.
Some of the impacts can be mitigated by dollar rating and replacing goods produced in the US, while corporations may choose to absorb some of the increase in costs through lower profit margins, economists said. But the size of Trump’s first steps – if fully implemented – appeared much larger than the most limited trade wars against China and the G7 allies during his last time in office.
“It can be a trade war against steroids,” said Ryan Sweet, US economist chief at Oxford Economyics. “The first round was more intended. Now they seem to be passing through the board – and faster than I expected, “he added.
Everett Eissenstat, a former Trump Economic Adviser now in Squire Patton Boggs, said: “I expected the tariffs to enter a more discreet way. But we can say there is a direction here, and that seems to be escalating. “
The first tariffs in Mexico, Canada and China can only be the beginning. Trump officials have been thinking of imposing universal tariffs on all imports, and adding the taxes he imposed on Saturday.
Trump now wants to use fees to generate income to pay the extent of trillions of tax cuts, which can only be achieved through carefully calibrated but large taxes that could be difficult to return .
“When it comes to collecting income, if the fee is too low, it won’t raise enough money, if it is too high it will stop trade and then you won’t make money. They will have to find the place of Sweet, ”says Bill Reinsch of the Center for Strategic and International Studies.
As Trump doubles with tariffs, he faces little resistance from business groups and free market republicans who have traditionally made his populist policies and tried to restore it. Jim Risch, Idaho’s senator who heads the Senate’s Foreign Relations Committee, cheered the latest movements.
“President Trump has always been very clear that if you see Americans being benefited, he will not deal with him,” he said. Referring to Canada, Mexico and China, he added: “These governments know very well that they must curb the course of drugs and illegal immigrants in our country. The sooner they do, the better. “
But there are two major risks to Trump. One would be a sale that sends the net capital markets and the value of the falling American pension plans. The other would be for inflation to grow again after gradually falling towards its 2 percent target over the last two and a half years.
Shearing said Trump’s proposed measures can push PCE title inflation over 3 percent, compared to 2.6 percent now. Large taxes in the EU and China would postpone even higher US prices, he warned.
“This is a big hit, especially for families working, including people who voted for Trump for the reasoning that he will lower prices,” said James Knightley, the international economist chief in the US
“The risks are that we see some real pains for the home sector that comes later this year, especially if it expands tariffs in Europe.”
Democrats, who have been looking for ways to attack Trump early on his second term, have already sought in the potential of higher inflation.
“Slipping big gas fees, groceries, phones, TVs and cars means that working American families will pay more for the things they need,” said Ron Wyden, Senator of Oregon, on Friday.
“These fees only make sense as class warfare, forcing typical Americans to make the bill for another round of tax deductions for Trump and his rich friends.”
Trump has found comfort in the fact that inflation remained subjected during the trade wars of his first term.
But Jay Powell, the chairman of the Federal Reserve, noted last week that conditions had changed compared to the low -inflationary structural environment in front of the Pandemia. “You are going through a situation where we are not again at 2 percent and that’s just different,” he said.
For the global economy, a potentially gloomy scenario would be that of “massive shock of supply,” Knightley said, similar to wet shock economies during the Covid-19 pandemic.
“The danger is that this will be quite harmful, especially if we see an important response. And I don’t see how politicians don’t answer.”
