Donald Trump’s love of tariffs is as well-known as the capriciousness of the incoming US president.
For everyone from CEOs and family businesses to Wall Street investors and foreign governments, charting the path from protectionist campaign rhetoric to political reality is proving difficult, leaving the landscape riddled with uncertainty.
Bloomberg Economics has laid out a plausible scenario for what lies ahead. It is true that it is a plot outlined without a high degree of confidence given the unpredictability of Trump himself.
Formed by conversations with officials who helped implement the trade policies of Trump’s first term, an understanding of how the battle plans were constructed, and an assessment of political and economic realities, it aims to help stakeholders in the trade system. global trade of 30 trillion dollars to navigate the turbulence. .
Part of the challenge: separating the drama of Trump’s public statements (such as his tariff threats to Mexico, Canada and China last week and a new warning to the BRICS economies on Saturday) from the slower processes by which they are designed and enacted. rates. The drama has begun immediately. Tariffs may increase more gradually.
Leading up to his Nov. 5 victory, Trump suggested he would impose a 60% tariff on imports from China and a 10% to 20% tariff on goods coming from elsewhere. However, it seems likely that the import taxes he will implement in office will be sequenced and aimed at maximizing negotiating leverage and tariff revenue, while protecting American consumers from a return of the inflation that helped elect him.
Bloomberg Economics’ base case calls for three waves of tariff increases, starting in the summer of 2025, with taxes on China eventually tripling by the end of 2026 and a smaller increase on the rest of the world, focused on intermediate and capital goods that They do not increase directly. impact consumer prices. The combined impact would be a tripling of average US tariffs to nearly 8% by the end of 2026.
If this is how things play out, American imports and exports of goods will fall from 21% of the current world total to 18%, including a drop in trade between the United States and China. U.S. growth is taking a hit, inflation faces fierce crosscurrents from higher tariffs and a stronger dollar, bullish stock markets have a bearish hurdle to overcome, and unemployment is rising. But the extreme effects of the very high universal tariffs that Trump proposed during his election campaign are avoided.
Trump’s Social Truth posts last week threatened 25% tariffs on Mexico and Canada on his first day in office unless the countries crack down on migrants and fentanyl crossing the border, plus a tax additional 10% to China if it does not block exports of the opioid. Those actions would bring overall tariffs to a level similar to that projected in the Bloomberg Economics scenario, and with the same emphasis on China.
Last week’s salvo is just the latest reminder of Trump’s unpredictability and the many paths the tariffs could ultimately take. For the American economy, with supply chains for automobiles and other manufacturing crisscrossing the country’s southern and northern borders, the impact if Trump’s Social Truth threat is implemented would be severe.
There are many caveats, starting with Trump’s preference for attention-grabbing rather than sober policies. And there are numerous legal authorities that Trump could use to quickly impose tariffs once he returns to the White House, even by declaring a national emergency. But history shows that Trump is equally cautious about disrupting financial markets and investors who have so far proven more interested in his agenda of tax cuts and deregulation than his tariffs.
Read more: https://www.bloomberg.com/news/features/2024-12-01/trump-trade-war-explaining-tariff-scenarios?cmpid=BBD011425_TR ADE&utm_medium=email&utm_source=newsletter&utm_term=250114&utm_campaign=trade&sref=DPtqrPAJ&embedded-checkout=true
