The measure announced by Trump before the elections to impose tariffs of 60% on all products imported from China and 10% on products imported from the rest of the world, is causing strong tensions in US trading partners.
Making a calm analysis of the starting situation, of the background of Trump’s tariff decisions in his first term and of the rest of the announced measures, and of the book that Trump wrote in 1987, we reach the conclusion that The announcement of the imposition of these tariffs is more of a negotiating strategy than the declaration of a trade war.
The current starting situation reflects that US products exported to the rest of the world bear an average tariff of 6.5%while products imported by the US are only taxed by an average tariff of 3%.
Before the elections, the Republican National Committee advocated the introduction of a “Reciprocal Tariff Act”, through which no country could export to the US with a tariff lower than that applied by that country to US products. . Equalization of tariffs could occur in two ways: by raising the tariff applied to products imported by the United States or by reducing the tariff that the country in question applies to American products.
The analysis of the tariff policies applied by the Trump Administration in its first term also helps to predict how it will act on this occasion. The tariffs applied, especially to China starting in 2018, managed to have no impact on inflation. Now, despite what was announced, the tariffs are expected to not be general, but chosen strategically so that they have the least possible impact on inflation and growth. In the “2018 trade war” tariffs focused mainly on capital goods and intermediate goodsor in easily replaceable consumer goods.
Another factor to take into account is the temporal moment in which the new tariffs are expected to be applied. Taking into account that one of the main fiscal measures is the extension of the tax cuts approved in 2017 that expire at the end of 2025, the need for extra revenue from tariffs begins in 2026. The extension of the mentioned tax cuts alone represents around of 500,000 million dollars that must be covered so as not to increase the already large public deficit.
In 2018, the tariffs imposed on China did not lead to an increase in inflation, among other reasons because a very significant part of them were absorbed by exporters against their own profit margin. Additionally, the strength of the dollar also helped mitigate the effect on inflation. Now it could be similar, although the margin for exporters to reduce their margins is less.
Trump is a businessman expert in the art of negotiating. He wrote a book in 1987 titled The art of negotiating (The art of the deal). In the book, Trump himself mentions that What characterizes him most is his ability to reach commercial agreements. Clearly, he used this strategy in his first term and will use it in his second. In his first administration it worked with threats of strong tariffs on China, until they reached an agreement.
Now, just as it intends to lower the corporate tax to 15% only for companies that manufacture in the US, there is also a plan to exempt from tariffs for two years those companies that commit to manufacturing in the US.
For its part, Europe, and especially Germany, show great concern about the eventual implementation of tariffs. Knowing this art of negotiating on Trump’s part, Ursula von der Leyen’s statement on November 8, three days after the elections, is no coincidence: “We still receive a lot of LNG from Russia, and why not replace it with American LNG, which is cheaper for us and lowers our energy prices. Something we can discuss, also regarding our trade deficit”.
In conclusion, the trade policy and implementation of tariffs by the new Trump Administration will hardly be as simple as the implementation of tariffs of 60% to China and 10% to the rest of the world. There will be a lot of negotiation, but from a position of US strength.
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