Trump throws new tariff curveball: 15% tariffs on countries with whom US has trade 'deficit'

Key Concepts:

• Trade tariffs: Taxes imposed on imported goods.
• USMCA (United States-Mexico-Canada Agreement): The successor to NAFTA, governing trade between the US, Mexico, and Canada.
• Retaliatory tariffs: Tariffs imposed in response to another country's tariffs.
• Trade deficit: When a country imports more goods and services than it exports.
• Diversification: Expanding into new markets and industries to reduce risk.
• Intermediate goods: Goods used as inputs in the production of other goods.
• Gains from trade: The benefits that countries derive from international trade.

New US Trade Tariffs

• Imposition of Tariffs: The White House announced new trade tariffs on dozens of countries, with some levies as high as 41%, effective August 7th. A new 35% levy was announced for many goods from Canada, starting Friday.
• Canada's Perspective (Evan Dyier, CBC):
  • The 35% tariff on Canadian goods is less threatening than it sounds because goods traded under USMCA are exempt.
  • This affects approximately 10% of goods crossing the border, representing about 7% of overall Canadian trade.
  • The steel industry in Canada is more vulnerable than the aluminum industry, as the American steel industry is more capable of replacing it.
  • The Canadian government is taking a policy of responding only to what the US does, not what the US says, due to contradictory statements from the Trump administration.
  • There is pressure within Canada to retaliate immediately, but the government may hold off to continue negotiations for a "grand bargain."
  • Canadians are unhappy with the tariffs, leading to boycotts of consumer goods and decreased cross-border travel.
  • The pretext for the tariffs, that Canada is a source of fentanyl entering the US, is seen as false, as statistics show the opposite is true.
  • "The US still has not reached for that sort of big gun that it could reach for, which would be to include the USMCA traded goods as well."
• Asian Markets' Reaction (Ian Chong, National University of Singapore):
  • Asian markets are reacting negatively, with shares falling.
  • The impact varies by economy, with countries having large manufacturing bases being hit harder.
  • Singapore has a 10% tariff due to its trade deficit with the US.
  • Myanmar faces a 40% tariff, an outlier.
  • Transshipment rules will affect Southeast Asian economies, impacting companies using these countries to access the US market.
  • Companies that have invested across Southeast Asia and use those factories to produce things for the US market will experience knock-on effects.
  • If tariff talks between the US and China don't work out, Chinese goods will flood Southeast Asia, putting pressure on local manufacturers.
  • Countries may need to diversify their markets, looking to India, China, Europe, Africa, and the Middle East.
  • "The eagerness to strike deals with the US suggests that the US market still is really important and for right now they can't do without it."

Negotiations and Deals

• Negotiation Deadlines: President Trump has given Mexico another 90 days to reach a trade deal or face steep tariffs.
• Deals Brokered: The EU, Indonesia, Britain, Vietnam, South Korea, and Japan have struck deals with varying results.
• Examples of Deals:
  • Japan: Tariffs reduced from a potential 25% to 15%.
  • UK: Tariffs reduced from a potential 20% to 10%.
  • EU: Tariffs fixed at 15% after concessions.
• Outstanding Issues: China, Mexico, and Canada do not yet have deals in place.
• Non-Economic Demands: Trump is also pushing for non-economic changes, such as curbing illegal migration from Mexico and Canada's stance on Palestinian statehood.

Economic Impact and Analysis

• US Perspective (Kimberly Clausing, UCLA School of Law):
  • The tariffs are an "own goal" for the US, hurting the US economy.
  • US consumers pay for the tariffs, potentially costing the typical family $2,000 or more per year.
  • This tax increase is larger than any tax cut from Trump's tax bill, making about 80% of Americans worse off.
  • US businesses are hurt by higher costs of imported intermediate goods, leading to a decline in manufacturing employment.
  • Growth is down, and inflation is up in the US.
  • "People are fond of describing them as if the foreign country pays for the tariff, but it's not the foreign country that pays for the tariff. US consumers pay for the tariff."
• Global Impact:
  • Trade wars are unwinnable, hurting both importing and exporting countries.
  • Countries are trying to bargain for the best deal to avoid being relatively disadvantaged.
  • The situation is slightly better for trading partners because they can still trade with each other, while the US is reducing trade with every country.

Conclusion

The newly imposed trade tariffs by the US are creating significant uncertainty and disruption in global trade. While some countries have managed to negotiate deals to mitigate the impact, the overall effect is expected to be negative, with increased costs for consumers, harm to businesses, and a potential slowdown in economic growth. The situation is further complicated by non-economic demands and the potential for retaliatory measures, making it a challenging environment for international trade relations.