You cannot deny the unique achievements that President Donald Trump has accomplished. He is raising tariffs on some of America’s most critical trading partners, and for the most part, people are celebrating these moves, on the other side trade war has began.
To an extent, the bold approach that Trump has taken to impose unprecedented taxes on imports, especially when inflation is on the rise, makes sense. The President makes these decisions while trying to uphold the promise that they made during elections, i.e., to help the finances of Americans.
The majority of the trade-anonymous elites undermine Trump’s trade policy, accompanied by the belief that he will be a burden on businesses and consumers.
It is fair to say that there are some risks these days, but for now, everything seems to be turning out roses. Trump achieved that by using some old-school strategy, which was to set the potential pain of tariffs so high that almost anything that falls below that seems good.
On Wednesday, the first of February, Secretary of the Treasury, Scott Bessent, had an interview with Bloomberg Television, and in that interview, Scott pointed out: Trump always has a plan, but it’s not always so clear, it is not the most obvious.”
For instance, negotiations had stalled earlier this month, and Trump had threatened Japan with a 25% tariff. However, a trade agreement between the two countries announced late Tuesday contained a provision of a 15% tariff on Japanese goods imported into the United States.
US markets experienced a robust increase on Wednesday, and Japanese markets soared as well.
However, the increase of 15% surpasses the 10% that US importers have been paying on Japanese exports since April, when Trump implemented his so-called reciprocal tariffs on trading partners. It is also considerably higher than the 1.5% tariff on Japanese goods before Trump took office.
Victory is claimed by some analysts as the certainty that the trade agreements provide to investors, consumers, and businesses.
The positive, suggested Boockvar, is the hopeful expectation of reaching some resolution regarding all of the tariff fog about the ultimate rates so that businesses are able to plan around them. He added, however, that this is “a bizarre political and economic theory world we now live in.” Trump is winning by moving the goalposts, as Ed Mills, Washington policy analyst at Raymond James, remarked.
Mills said, “Compared to what he threatened, it looks like he caved. Compared to what was previous, it’s a significant tariff.” “For investors, it’s all about the certainty. A number, any number, will work.”
As described by TD Securities Analyst Chris Krueger, “Trump has shifted the Overton window – the range of outcomes that the public is willing to accept.”
“To put the above statement in perspective, (A) 15% tariff on the US’s fifth-largest trading partner? Better than 25%,” Kruger is quoted in comments to clients.
Winning In The Near Term
Instead of a parallel path to a mutually beneficial relationship, a colossal shift has occurred, resulting in what is now being termed the trade war (although ‘war’ may be a stretch). The empty rhetoric may be short-lived, but far-reaching consequences – economically and politically – still loom as a result of Trump’s decisions.
The tide seems to have turned since April 9 onward, when Trump briefly suspended ‘Liberation Day’ tariffs that, for a moment, projected a stock market drop and a bear market on the horizon. During this time, the bond market also seemed on the verge of breaking until Scott Bessent, the Treasury Secretary, softened Trump’s more extreme tariffs.
The above pivot, along with a few other catalysts, has allowed markets to rally and consumer sentiment to gradually improve – climbing off the all-time lows. Further, on April 12, Trump’s administration took steps to lift concerns by rolling back China’s 25% tariffs on smartphones and other electronics. This, too, significantly contributed to market recoveries.
Around the middle of May, the Trump administration made a deal with China that both sides would lower tariffs and open certain markets that had been closed during the period of heightened tensions. The tariffs on imports from China were reduced from 145% to 35%, which was a historic level akin to a shipping embargo.
There was also a trade deal with the UK, the reiterated China deal, and a flurry of announcements on trade from Indonesia and the Philippines to Japan, which provided much-needed doses of certainty.
Trump has also given a boost to US industry with the use of tariffs and trade deals, and has used blunt force non-tariff barriers like digital services taxes. The administration views these taxes as non-tariff barriers that disproportionately burden the American tech industry.
In the second half of the month, we saw Trump launch into Canada for imposing taxes on American-based digital companies, threatening to pull out of trade negotiations, and saying that US-Canada trade relations were going to be stalled unless he received favorable terms. He also announced that by the end of the month, he would be setting a new tariff for Canada. A few days later, Canada dropped the tax.
Trump attempted to integrate US exports as a part of his trade deals, such as beef to the United Kingdom, rice and cars to Japan, and other products to Vietnam, Indonesia, and the Philippines.
Victory Isn’t Certain.
However, in regard to trade, victory doesn’t seem to be in sight for Trump as he has been promising. Dozens of trading partners seem to be receiving higher tariffs set for the end of next week, and Trump has suggested the 10% universal tariff he imposed on April 2 could be increased to 15% or 20%.
The European Union, one of the major US trading partners, has been evasive to trade agreements, and tariffs on both sides of the Atlantic may increase drastically.
It’s unclear how the US and global economies will manage to cope with increased Trump taxes, especially as US importers deal with stocked goods that were brought to the US before the taxes were imposed.
In a note to clients, Lynn Song, chief economist for Greater China, said, “It’s too premature to comprehend fully the longer-term consequences, especially with fresh changes expected in August.”
This is something that the Trump administration is aware of. It does seem the White House is sparing key trading partners from excessive pressure, as noted by Ulrike Hoffmann-Burchardi, global head of equities for UBS Global Wealth Management, because the deal with Japan was better than expected. High tariffs and potential tit-for-tat retaliation are triggers that could cause pain for businesses, investors, and the public.
The job market shows signs of wear and tear, inflation is creeping higher, and consumer spending is gaining traction, though it still lags compared to pre-Trump tariffs. Though business sentiment is improving, earnings and growth expectations are stagnant.
In the US and Japan, bonds were also sold off as market sentiment was shifting. This is also the underlying reason why the US dollar continues to sink sharply.
The current market is demonstrating that the state of the economy would rather not experience turmoil than the potential for the economy to change for the worse.
Donald Trump’s Political Career
Trump’s political life commenced when he declared his intention to run for president in June 2015 with the Republican Party. He gained notoriety for his real estate business and a reality television show, and touted himself as the political system’s game-changer.
His campaign was notorious for a strong focus on immigration, populism, and the slogan “Make America Great Again.” He controversially won the Republican nomination and subsequently defeated Hillary Clinton in the 2016 elections, becoming the 45th president.
Trump’s presidency was characterized by tax cuts, deregulation, a more nationalist foreign policy, remaking the federal judiciary, and expanding the scope of federal courts. His administration also withdrew the U.S. from multiple international agreements and imposed stricter immigration policies.
Trump’s presidency was rife with controversy, and he was impeached by the House twice — first in 2019 for the Ukraine scandal, and a second time in 2021 for the Capitol riots, but was acquitted both times by the Senate.
Trump lost the 2020 elections to Joe Biden and has yet to concede, persisting in unsubstantiated claims of election fraud. He has, however, remained active in pursuing the Republican candidacy for the 2024 elections. Source
