In his second term, U.S. President Donald Trump branded tariffs as “the most beautiful word in the dictionary,” asserting their role in achieving crucial objectives: persuading foreign leaders, revitalising U.S. manufacturing, and curbing the trade deficit. Notably, his high-profile tariff announcements, like the 25 percent on imports from Canada and Mexico and the 10 percent on China, showcased his strategy aimed at negotiating leverage.
On February 3, Trump negotiated a last-minute delay with Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum. This pause averted immediate tariffs, allowing both countries to prepare retaliatory measures. Concurrently, Canada and Mexico pledged increased border security to address immigration and drug trafficking, showcasing a shift from traditional trade concerns to more immediate political goals.
Initially, the stock market reacted negatively to the potential tariff imposition but rebounded upon the announcement of a reprieve. Trump measures his success through market performance, media attention, and public approval—a combination that sways based on immediate reactions rather than long-term economic consequences. As the tariff strategy unfolds, public sentiment may remain favourable until it affects prices and job availability.
The tariffs on Chinese imports, reaching over 30 percent, prompted China to implement its countermeasures. Trump labelled this tariff increase an “opening salvo,” indicating a potential for significant escalation if negotiations falter. Additionally, he threatened tariffs on European goods, signalling persistent global trade tensions that overlook the historical path towards cooperation.
Despite the aggressive stance, the tariffs are unlikely to spur a manufacturing boom or meaningfully reduce the U.S. trade deficit, which persists near $900 billion annually. However, if these tariffs materialise, inflation may skyrocket, compelling the Federal Reserve to raise interest rates and impacting housing affordability severely. The subsequent rise in mortgage rates could hinder many Americans, particularly first-time buyers.
The looming spectre of high interest rates and retaliatory tariffs threatens valuable employment in U.S. industries. As midterm elections approach, these economic consequences could prove detrimental for Trump’s support. He may choose to tout victory through the threats alone without actualising drastic measures, attempting to relieve some strain before voters cast their ballots.
Internationally, uncertainty reigns in multinational corporations as U.S. commitments to trade agreements seem less stable, complicating long-term investment designs. Countries like China, the EU, and Japan are expected to uphold their trade commitments while assessing the potential disruptions stemming from U.S. policies. Such instability could disrupt global trade and finance, reshaping the post-World War II economic order.
Conversely, some nations may respond constructively to these pressures, forging stronger bilateral and multilateral ties and creating trade alliances such as the CPTPP and the EU-Mercosur agreement. Alternatives to the dollar-centric financial system may emerge, and institutions like the IMF may gain traction from new members, indicating a possible shift towards resilience amid adversity.
Donald Trump’s tariff policies are primarily conceived to influence foreign negotiations, strengthen U.S. manufacturing, and diminish the trade deficit. His tariffs have led to immediate market reactions and potential inflation, with risks of job losses in the U.S. Despite challenges, other nations may respond by enhancing their international ties, indicating a shift in the global economic landscape.
In summary, Trump’s aggressive tariff policies serve multiple political and economic purposes, aiming to negotiate with foreign leaders, bolster U.S. manufacturing, and reduce the trade deficit. Despite potential immediate benefits, the overarching impact could lead to inflation, rising interest rates, and job losses, which may unfavourably affect public sentiment ahead of the midterm elections. The global economy faces potential instability, yet some countries might formulate adaptive strategies to find constructive solutions amidst Trump’s contentious tariffs.
Original Source: www.chinadaily.com.cn
