The Continuing Decline in Financial Markets Registered Serious Disfavor for Tariffs
Even as Donald Trump was rolling out his tariff war with the world, it was difficult to remember as broad a policy change for which no one had any idea how it would work out.
Despite years of Trump promotion of tariffs as good policy, apparently his economic team continued debate up until the announcements about how it all is supposed to work for the better. By contrast, those seeing economic dangers ahead in uncertain world markets, higher consumer prices, interrupted business supply lines and “a temporary period of pain” were sure about what’s ahead.
Even the most favorable reactions to Trump’s brashness were calling tariffs “a gamble” on both clarity and any tangible positives for anyone not on Team Trump. Somehow, Trump managed to launch sweeping attacks against much of the world as a drama in which he never quite decided what he was ordering or whom he needed to target or the scope of the reactions.
That lack of planning is equally true for the growing protests — and now adverse election results — that we are seeing over reactions to mass cuts to government services, deportations of “criminals” that include street roundups of students and immigrants with legal documents, and attacks on private institutions, universities, law firms and businesses.
Trump, who insisted on labeling the launch of global trade wars as “Liberation Day,” has never made clear who is being liberated, exactly. It’s not liberation for markets, exporters, manufacturers or for the targeted countries; it is not for U.S. consumers.
What Trump Presented
In a splashy, nationalistic, highly partisan Rose Garden presentation, Trump unveiled what amounts to a blanket 10% tariff on all incoming goods, plus a list of country-by-country “reciprocal” payments that combined literal tariffs and other “foreign barriers,” including currency “manipulation” and various local sales taxes. Amid wandering, partisan commentary, Trump made the point that the U.S. was assessing imports based on about half of those combined foreign tariffs. All foreign cars and car parts will find a 25% demand waiting upon delivery.
So, China has tariffs of 34%, or half of its combined U.S. tariffs, presumably plus 20% already imposed — unless it isn’t. The European Union will be assessed 20% in all. Mexico and Canada were omitted from the tariffs list despite recent haggling about tariffs after a decade of free trade agreements, including the update negotiated and signed by Trump himself. Tariffs will require more explanation as well as persuasion.
It was a confusing, belligerent presentation, and specifics were difficult to understand, not only because of the maze of tariff numbers listed on a too-small chart, but because some imports — bananas are an example — will never be produced in the United States, the ostensible goal. Trump’s rewrite of tariff history seemed to skip over the fact that he is one of the former presidents who did not overturn trade deficits.
Most foreign leaders were expected to launch counter-tariffs today or shortly, once they understand the local impact. Trump could then respond again. But then Trump seemed to say countries willing to make deals might get exemptions or partial waivers. The UK, which is negotiating a trade deal and is a close ally, nevertheless is being charged 10% on imports.
Tariffs Serve Trump
Trump has made clear his declaration of a tariff-driven world was U.S. retribution against other nations “ripping off” the United States, and that it would lead to a new American golden age with other nations racing to invest here, build manufacturing plants and jobs, and make this country wealthy. And, of course, experts said the tariffs would hit U.S. consumers unequally, affecting the lowest earners the most.
Imposition of Trump tariffs is a political decision, and as exceptions emerged among nations who wanted to make some kind of deal was being seen as another opportunity for national leaders elsewhere to bow the knee to King Trump. Israel, for example, dropped its few U.S. tariffs just before the announcement.
Tariffs are stalking as alternate foreign relations, with the current pressure on Canada to cede nationhood altogether as the prime example. Other tariffs are aimed at influencing nations like Venezuela to accept deportees; the threat to impose “secondary” tariffs on nations who buy Russian oil is aimed at pressuring a ceasefire agreement by Russia in its war with Ukraine.
Economists said it would prove an unforced national error that will bring about higher prices and worsened growth.
The rest of the world treated the announcements as if they were the source of a bad odor or just insane. The continuing decline in financial markets registered serious disfavor for tariffs. Economists said it would prove an unforced national error that will bring about higher prices and worsened growth. The Wall Street Journal labeled it “dumb,” and editorial writers at The Washington Post asked simply “Why is Trump waging a trade war?”
What was promised was a barrage of “reciprocal” tariffs on imports of everything from cars to avocados, an eye-for-an-eye strategy that supposedly will level the global economic playing field, with the Trump White House calling the policy shots for every other country on Earth.
But either because his team couldn’t decide what exactly Trump wanted or because Trump insisted on the singular, despotic spotlight, we were left wondering exactly what the U.S. president had in mind. As things stand, we have the beginnings of a list of these “reciprocal” tariffs that may or may not mesh with outstanding treaties and agreements, that are likely not to rebalance trade deficits, that certainly will foul both supply chains and the export possibilities for U.S. businesses.
How Do We Measure Success?
As The Post’s editorial noted, “All that’s known is that the so-called Liberation Day serves no useful purpose. The project’s stated rationale — to do away with “destructive trade deficits,” as Trump said on Inauguration Day — is absurd. Tariffs do not end trade deficits.” Trade with Mexico and Canada, where there had been almost no tariffs, still have deficits.
Reciprocity in Trump’s definition include foreign policies and practices that he just doesn’t like, including not only others’ import taxes, but currency exchange rates, low wages or poor working conditions, use of value-added taxes and other measures. Those nations were hit, along with Europe, and counter-tariff announcements are expected on pharmaceuticals, computer chips, food and wine products.
Trump says he wants the revenue from tariffs to pay for tax cuts, which historically have favored the wealthy and corporations.
Setting the tariffs also has unleashed all kinds of wild predictions about impact.
Trump’s advisers acknowledge temporary price issues, but trillions of new dollars pouring into the United States’ coffers. They see hundreds of billions of dollars’ worth of investment ahead to build facilities for U.S.-only manufacturing, as if new plants will depend on older views of human-powered manufacturing processes. Anti-tariff thinkers see the opposite, of course, with hyped dire results.
The only thing about which we can be certain is that the tariff policy will be its own tax on U.S. consumers, who will pay higher prices for everything.
Trump promotes each promise of investment as if it is real event, even if the proposals come bound with significant and wispy financing and hiring complications.
The reality is that tariffs will cost money as well as protect U.S. manufacturing interests. Already, Trump is seeing that he will be forced to pay U.S. farmers who are losing overseas markets, for example, though he has yet to recognize that the rest of the world may not want to buy a Chevrolet rather than a less expensive car from elsewhere in the world. There will be effects on U.S. financial markets, continuing high borrowing rates, unemployment benefits, and the consequences of losing legal battles that may force rehiring workers already laid off or dismissed.
Tariffs are a multi-edged weapon, and without clear planning, wielding them for political threat may not prove a wise move, even for the biggest consumer-based economy around.
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