Trump is fighting tariffs with the global economy. Analysis
US President Donald Trump has announced the imposition of tariffs on almost all imported products entering the United States. Almost all countries of the world received 10 percent duties, and he also imposed additional fees on those countries that earn more from trade than the United States. With this measure, the White House wants to achieve an increase in industrial production and shake the globalist nature of the economy. How Trump's tariff policy will turn out is in the Izvestia article.
What tariffs is Trump introducing?
During his two and a half months in office, Trump signed a number of executive orders that impose tariffs on products imported into the United States. On March 12, 25 percent duties came into force on all steel and aluminum imports, which were later expanded to aluminum cans and canned beer. Previously, the United States had 10 percent tariffs on these metals. In response, Canada and the European Union imposed retaliatory duties.
• Tariffs on imported cars went into effect on April 3, and on May 3 they will expand to include foreign auto parts used to assemble cars in the United States. The exception is cars subject to the free trade agreement between the United States, Canada and Mexico (USMCA), which requires the purchase of most components inside North America. Some brands, such as BMW, were not excluded.
• In addition to sectoral tariffs, Trump also imposed measures on specific countries. Most often, products from China were subject to restrictions. Since the start of his second term, Trump has twice raised tariffs on Beijing by 10%. In response, China imposed duties on coal, liquefied natural gas, oil, agricultural machinery, automobiles, and agricultural products from the United States.
• Canada and Mexico are also subject to national tariffs. Since March 4, they have been subject to 25% duties on all goods except those subject to the USMCA, which is about 50% of Mexican exports and 38% of Canadian exports. Oil and energy resources from Canada are subject to fees of 10%. If Ottawa immediately imposed some retaliatory tariffs, Mexico City did not take such a step.
• On April 2, Trump announced the largest package of tariffs, which he himself called reciprocal. Starting on April 5, he imposed 10 percent duties on 185 countries and territories, including some uninhabited islands, and starting on April 9, additional tariffs for countries that have a positive trade balance, meaning they receive more money from the United States than they pay them. 60 countries fell under this measure — they received additional tariffs from 11% to 50%. By adding up all the tariffs, it turned out that goods from China received a duty of 54%. Trump has not imposed new restrictions on a number of countries, including Canada, Mexico, Russia, North Korea, Cuba and Belarus.
Why is Trump imposing tariffs?
• Trump's policy is guided by the slogan "Make America great again." This means moving in the opposite direction from the global world. Under Trump, the United States is striving to become a self-sufficient country that primarily thinks about its own benefit, and not about how to lead others to its detriment. The global world is based on a single trading space, and therefore Trump seeks to destroy it through tariffs and the redistribution of economic benefits in his favor.
• In a more applied sense, the Trump administration wants manufacturing, which has moved to countries with cheaper labor, to return to the United States and give Americans jobs. Although this was beneficial to the companies themselves and allowed them to reduce costs, Washington now believes that the economic model should be deployed in favor of workers so that their well-being grows first. Tariffs on foreign products should, according to the White House, make their own products more attractive and increase demand for them, as foreign ones will become more expensive.
• Among other things, Trump has another purely practical goal — to overcome the budget deficit by lowering Treasury bond rates so that they can more easily refinance expenses. When Trump took office for the second time, 10-year bonds were trading at a yield of 4.8%. Against the background of the introduction of tariffs, they decreased to 4.07%. The promise to put the budget in order and avoid a catastrophe in the future was one of Trump's main ones.
The US budget is in deficit, with spending exceeding revenue year after year. To cover the difference, the government issues Treasury bonds, pledging to pay premiums to their holders.
• Another goal declared by Trump is to combat the negative trade balance. For the United States, it amounts to $1.1 trillion. This is the highest value among all countries in the world, and by a significant margin — India is in second place with about $250 billion. In terms of GDP, the US deficit is almost 4%, and the White House sees the problem as the country is losing too much money by providing it to other countries.
• For Trump's purposes, the weakening of the dollar is also beneficial, and this is precisely what is happening against the background of uncertainty that has arisen since the last introduction of tariffs. The current collapse of the dollar has become the largest in the last 2.5 years, and it has lost up to 2% against some world currencies. A weaker dollar should boost U.S. exports and reduce imports. This tool has long been used by the world's leading economies, including China, the European Union and Japan, thus stimulating their production at the expense of American demand.
• In addition to economic goals, Trump also pursues political goals. He explained the first tariffs against Canada, Mexico and China by the need to combat drug trafficking and illegal migration. Beijing is generally the main irritant for Washington in connection with its ambitions for world leadership. With regard to Europe, Trump has made it clear that he wants to shift security and defense issues to it. The tariffs are designed to either solve Trump's political objectives or improve the economic situation of the United States. The White House gives other countries a peculiar choice, initially putting the opponent in the most unfavorable conditions. At the same time, Trump himself should be the winner.
What are the consequences of tariffs?
• The tariffs imposed by Trump should not be perceived as final and not subject to revision. In the past, the US president has repeatedly demonstrated that tariffs are not only a goal for him, but also a means, a kind of tool with which he seeks more advantageous negotiating positions with a particular country. Having received what he needed, Trump can easily put the threat of tariffs aside.
• In April, Trump imposed a huge number of tariffs without any discussion, departing from his usual tactics. But that doesn't mean he's giving up on her. In the future, we should expect that he will negotiate with each country separately, seeking favorable terms for himself. The fact that this time the consequences came before the warning may be unpleasant for other countries, but Trump does not express any embarrassment about this.
• If we assume that tariffs will remain in their current form for a sufficiently long time, then the main consequence will be the destruction of economic globalization. The World Trade Organization (WTO) that built it will actually cease to exist, as its activities will lose all meaning. Trump's tariffs will not only provoke a backlash, but will also untie the hands of other countries, pushing them into local trade wars that will no longer concern the United States. Other integration structures, such as the International Monetary Fund and the World Bank, will also soon cease to be relevant.
• Starting a trade war, the United States has some advantage in it due to the fact that it is the first economy in the world and the issuer of the most popular currency. There is little left for other countries to oppose, even if they impose retaliatory tariffs, as they may not even be noticed in Washington. In this regard, they can only suffer losses, counting only on their reduction, but not on the fact that the reversal in the global economy will bring them any benefit. Analysts have already estimated that the damage to the European Union could reach €750 billion, and to Germany — an unbearable €200 billion, which would lead to a loss of 1.5% of GDP by 2028.
• The United States also faces economic problems in the short term. A drastic restructuring of the economic model cannot take place without negative consequences. Tariffs will naturally lead to an increase in inflation in the United States, which may reach 1-1.5%. Economic growth is also expected to slow down, which may become noticeable in the next six months. Trump's actions are already leading to a drop in the stock market and a collapse in oil prices, but not yet enough to indicate signs of a recession, the probability of which in the United States is estimated to be below 50%.
• However, in the longer term, Washington expects to achieve a positive effect for itself. Tariffs should push American companies to import substitution, increase production and eliminate unemployment for their own citizens, which also helps the fight against migrant workers. Reviving the economy after the first shock and debugging technological processes will allow the Trump administration to reduce taxes and control inflation, and at the same time put the federal budget in order — at the same time, Elon Musk's Department of state Efficiency is working on this.
During the preparation of the Izvestia material, we talked and took into account the opinions of:
- Vladimir Mozhegov, an American political scientist;
- Konstantin Blokhin, an American political scientist and a leading researcher at the Center for Security Studies at the Russian Academy of Sciences.
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