Economic literature and geopolitical doctrine have been focusing for years on the similarities between the Roaring Twenties of the last century, which led to the Crash of 1929, and this decade. Above all, due to the rampant economic disruption installed in a business cycle that has altered value chains and caused commercial and logistical collapses, inflationary spirals and increases in the price of money. As a century ago, high geopolitical tension has been activated, a wave of far-right national-populism and competitive demands that threaten globalization.
It already happened during Donald Trump’s first term. So, the next tenant of the Oval Office had just brought into play two hallmarks of the Republican presidencies since Ronald Reagan: tax cuts and a tariff crusade against China, the great geostrategic rival of the United States, and several of its historical allies. Now, the Trump 2.0 version that is going to land in your office in three weeks and its policy of “making America great again” is going to damage the economy, boost inflation and introduce greater caution in the interest rate cuts of the Federal Reserve, as shown by the results of a survey conducted by the Financial Times among more than 220 economists from the United States, the United Kingdom and the Eurozone published this thursday.
Trump intends to take the war on import taxes, the greatest protectionist measure in the commercial field, to an almost unknown dimension. Or not so much, because market analysts and political observers agree that this ace in the hole was already used by the US in the 1930s.
The Tariff Smoot-Hawley Act, enacted in 1930, was for Steve Forbes, president and publisher of the American media group, the main cause of the Great Depression: “It was what caused the severe global contraction that lasted from 1929 until the beginning of the Second World War”. It was approved despite the warnings of the then economist and Democratic senator, Paul Douglas, who even implored Herbert Hoover’s presidential veto to avoid the debacle of the Grand Old Party (GOP) legislative initiative, which already left plenty of protectionist economic reminiscences.
Trump’s tariff promises torment even some neoliberal consciences. Like those of the Cato Institute, with an ultra-conservative soul, or the Center for Trade Policy Studies, which do not hesitate to describe them as a “serious error.” Perhaps not so much when assessing the tariff attack that has advanced against China, to whose export items to the US it intends to apply tariffs of 60% – and even up to 100% on certain goods and services – but when interpreting the 25% increase. to its USMCA partners, Canada and Mexico, and that would affect 83% of imports from its southern neighbor and 75% from the north in 2023.
Colin Grabow, associate director of Cato, puts it bluntly: “There will be damage to consumers, through inflationary spikes, and to American companies, which will lose competitiveness due to the greater allocation of costs that will inevitably be brought about by the new rates.” This scenario recalls and defines the protectionism of the Great Depression, he concludes.
Herbert Stiefel, from the think tank Center for Trade Policy Studies, highlights the “alarming similarity” between both eras and the additional tax, of 10%, on all Chinese merchandise that touches or docks at international ports. It must be remembered that Smoot-Hawley (sponsored by two staunch Republicans) “increased tariffs on more than 20,000 products by 20%”; theoretically, he did so to “protect American farmers and industrialists and their workers from foreign competition.” But in practice it reduced the volume of international trade by 66% from 1929 until 1934 when Democrat Franklin D. Roosevelt assumed the US presidency and abolished the rule.
Tariff escalation against ‘business as usual’
Concern has arisen among businessmen even though the future Trump cabinet has been made up of millionaires and executives. Secretly, most of them have reviewed the first corporate decisions to address new calculations in the range of supplies of manufacturing and raw materials that their companies and industries will demand in the coming months. And they prepare measures that more than likely cushion price pressures and alterations (of costs, capital and human resources) in their production chains.
The new round of tariffs has already precipitated some strategic shift. Stanley Black & Decker, for example, the world’s largest manufacturer of DIY instruments, has already shown its intention to move its operating centers out of the Asian giant. Lowe’s, a manufacturer of household appliances, criticizes the barriers to importing goods made in China Trump’s first term has already caused them “multiple supply problems” due to the “notable tariffs” imposed on numerous regular shopping catalogs with their clients from the second global economic power.
Mattel, manufacturer of Barbie dolls, or Whirlpool, another appliance brand, have factories in Mexico and have stated these days that Trump’s tariff measure seems devastating to them. Almost three-fifths of the aluminum that the United States buys comes from Canada and more than a third of the steel that its industries and companies request comes from Mexico. The Citigroup bank estimates the rise in the price of these metals for the US manufacturing sector at between 25% and 30%.
Auto tariffs are another obsession of the trade hawks who have taken over Trump’s trade policy. Although it will be he in person who will assume the reins of his favorite federal administration. General Motors acquires half of its famous equipment pickups of North American customs partners. For Nomura, a Japanese investment bank, four-fifths of the operating profits of this American multinational in 2025 are at stake.
Toyota’s revenue would also fall substantially with specific tariffs on this industry. One tenth of the value of components and materials in the US automotive segment come from Canada and Mexico.
The tariff ceilings for specific countries, sectors or services and manufacturing are to be determined and will be revealed in the coming months. A recent analysis by The Economist anticipates the defensive tactics of American companies.
The first is to accumulate inventories, as Dell, HP or Microsoft and, in general, the technology industry admit that they will do, in line with what happened during the Great Pandemic due to disruptions in global value chains. JP Morgan Chase assures that, in 2024, the ratio of human capital allocated to sales among the 1,500 companies with the highest value in the country was the highest in the last decade, with the exception of the year in which activity resumed after Covid -19. The data reveals the propensity to accumulate stock throughout the year.
Another, more complex strategy is to reconfigure value chains with new suppliers and renegotiate current contracts, a more demanding process that would take years. Despite this, it is the favorite option among firms with a presence in China.
The commercial archenemy
The Asian giant is the rival to beat. It is the legacy that Trump rescues from his first term. China was also the scourge of the Biden Administration’s trade policy, which vetoed technology transfers to the foreign sector, demanded the same blockade on companies from its European, Asian and Anglo-Saxon partners and raised tariffs on the import of high-end chips for industries. of innovation and renewables and of materials and components for vehicles with a manufacturing seal in the Great Global Factory.
The effect has been seen very clearly. The Kearney consulting firm specifies that the import of manufactured products and services from the Asian giant between 2018 and 2023 went from 24% to 15%; especially in the technological segments, points out the Federal Reserve. And, although Trumpist anger is directed directly at China, CEOs’ concern is global. For McKinsey’s Cindy Levy, tariffs “are the top priority on executives’ minds.” Several of their latest x-rays of the situation reveal that this scenario “generates anxiety” due to its uncertainty and “they are convinced that they are here to stay.”
The general opinion among managers of multinationals, especially those from the US, is that it will be necessary to “modify corporate strategies to adapt to the ambiguities of 2025.” And “recompose investment portfolios, review operational tactics, optimize value chains, improve talent attraction and allocate investments to technology and Big Data.” Because doing business with China will be “quite different.”
On this occasion, Beijing “has prepared Trump’s return,” warns Lizzi Lee in Foreign Policy. Already between 2018 and 2020, the Asian giant managed to “minimize the vulnerabilities” of its foreign sector and “trade pressures” in an exercise of resilience. In Trump’s version 2.0, the power of turbulence and the risk of sunstroke in his opinion is greater, with the risk that the weaknesses of the second largest global economy will continue to spread due to sluggish consumption.
The Chinese leader, Xi Jinping, “continues to believe in his global vision” and in the ability of his companies to modify their productive structures and “adapt to a world market without technological dependence.”
His confidence that broad fiscal and monetary stimuli will catapult GDP is complete, says Lee. Almost as much as its expected reaction against trade obstruction and the abandonment of multilateralism by Europe or allies such as Canada, the United Kingdom or Japan, even though 2024 has been a bad stock market year, with massive capital flight, or exits looming. from Western multinationals: American, such as Apple, Starbucks, Eli Lilly or Walmart, and European, such as Volkswagen or LVMH.
In parallel, China has counterattacked an investigation into monopolistic practices against Nvidia that does not hide geopolitical motives. It is the response to the White House’s veto of its chips through prohibitions on the export of gallium, germanium and antimony, keys to integrated circuits, infrared technology or fiber optics. But there are also signs of finding well-founded accusations against the free competition of the great chip emporium and the largest capitalization firm on the planet for much of 2024.
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