In a few weeks it has been clear what the intentions and forms of Trump are. It will use the threat of strong tariffs to (coercion) negotiate with its commercial partners to achieve its economic and political objectives. These objectives range from the acceptance of illegal repatriated immigrants (Colombia), to the control of the border (Mexico and Canada), to the least influence of China (Panama), or the purchase of American gas and armament (European Union).
From the economic point of view, Trump has to maintain a difficult balance between the measures to be taken so as not to trigger an inflationist spiral, or an entry into recession of the American economy. In addition, it cannot take measures that create distrust of the American Treasury Bonus and trigger the interest rate required by investors and, therefore, the financial cost of their debt.
Announce strong 25% tariffs first to Colombia, and later to Mexico and Canada (10% to energy products), and cancel or postpone its application in less than 24 hours, after telephone calls with the presidents of these countries, says a lot of real intentions and Trump’s negotiation forms. First, it raises maximum demands, to finally reach an agreement away from these levels, but that improves the starting situation of the United States.
Trump cannot be allowed to unbalance. He knows that the increase in the cost of life greater than 20% during the four years of Biden has been one of the causes of his electoral triumph. Within just 22 months there are again elections, which can end the republican control of the two cameras of the US Congress. Additionally, an increase in inflation expectations would imply an increase in interest rates required by investors to the United States Treasury Bonds. During this year 2025, The treasure has to issue debt (bonds and letters) for an amount of 9 billion dollars (American trillions). This amount does not include possible additional increases in deficit.
On the one hand, Trump has promised to extend the 2017 tax reduction that expires at the end of this year. This measure, depending on its extension, would mean about 200 billion dollars of lower fiscal income a year. In the short term it seems difficult to expect large results of expenses of expenses promoted by Doge, the Department of Government Efficiency directed by Elon Musk. Therefore, the only way to increase tax revenues is to increase tariffs applied to imports.
Taking into account that currently the middle tariff supported by US exports is 6.5%, while the one applied to imports that the US economy performs is only 3%, an increase in the middle tariffs seems inevitable. In any case, the temporary moment of application of the measures is very relevant.
Tax reduction will be applied in the next fiscal yearhaving no effects until 2026, so that Trump has much of this year to negotiate tariffs with each of the different commercial partners.
If the negotiations with the different affected (especially their two partners of North America, EU and China) are not fruitful and the final tariffs are high, the effect on inflation and growth since entering into force can be remarkable. On the contrary, if they do not impose additional tariffs on the current ones, but the tax reduction measures announced are applied, the fiscal deficit will exceed 7%, calling into question the sustainability of US public debt, with the consequent increase in types of the treasure bonds and the financial cost of the debt.
The alleged Trump measures are conditioned by some red lights that, if lighting, will reconsider turning the course.
– First of all, The level of inflation. Unblocked inflation cannot be allowed.
– In second place, The interest rate of bonds In the long term. If 5%exceed, it would be a dangerous signal for debt sustainability and a ballast for growth.
– Thirdly, The S&P 500 index level of the American stock market. Trump himself measures the success of his management based on the evolution of the bag. 41% of the sales of the members of the S&P 500 come from abroad. These sales are susceptible to tariff application as retaliation by commercial partners.
Despite the initial falls of the bags after the ephemeral announcement of the tariffs, investors do not have just believed that the increase in tariffs is the majority announced. Months of international tension await us with threats and harsh negotiations, but Trump’s orders are limited by the evolution of inflation, interest rates and ultimately by the level of S&P 500.
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