As expected, US President Donald Trump announced new tariffs that will affect both the country's closest allies like Japan and adversaries like China. According to him, this will bring trillions of dollars “in tax cuts and paying down our national debt“.
What did Trump propose?
A 10% tariff is being added to almost all goods imported into the US - from all trading partners. In addition, Washington is imposing reciprocal tariffs on imports from dozens of countries - except Russia and Ukraine. A new tariff of 20% will be introduced for imports from the European Union. The rates vary for each country on the list: China - 34%, Japan - 24%, Vietnam - 46%, South Korea - 26%, Taiwan - 32%. Goods from Switzerland will be subject to an additional tariff of 32 percent, Israel - 17%, and India - 27%.
Some medical devices, semiconductors, pharmaceuticals, and gold have also been exempted from reciprocal duties so far. The basic import tariff of 10% will come into effect on April 5, and the higher rates for different countries - on April 9. Both groups of duties complement the existing US tariffs on China and levies on steel, aluminum, and cars.
What do the Americans say?
The reaction of experts and businesses was not long in coming. “Many U.S. manufacturers are already operating at low margins“, said Jay Timmons, president of the National Association of Manufacturers. “The high costs of the new tariffs threaten investment, jobs, supply chains and, in turn, America's ability to compete with other countries and be a leading manufacturing superpower.“
The head of the Consumer Technology Association, Gary Shapiro, also expressed concern: “President Trump's broad-based, global, reciprocal tariffs will lead to higher taxes for Americans, destroy jobs and cause a recession in the U.S. economy. These tariffs will raise consumer prices and force our trading partners to take retaliatory measures“, he said.
Former U.S. Treasury Secretary Lawrence Summers warned that the increase in tariffs would be a shock to the economy and increase both prices and unemployment. "The question now is how much damage will be done," he told Bloomberg TV.
How did they react in Europe?
European Commission President Ursula von der Leyen said the new tariffs would lead to uncertainty, supply chain disruptions, more bureaucracy and higher food prices. "We are already finalizing the first package of countermeasures in response to the steel tariffs. We are also preparing follow-up countermeasures to protect our interests and businesses if the negotiations fail," she added.
Italian Prime Minister Giorgia Meloni seemed a little more reserved in her assessment. On Facebook, she wrote: “We will do everything possible to reach an agreement with the United States in order to avoid a trade war that will inevitably weaken the West in favor of other global players“.
The thing is that US President Trump is currently destroying decades-old rules in global trade and wants to annex Canada and Greenland, as well as take control of the Panama Canal.
How are investors reacting?
“Overall, the size of the tariffs reinforces the feeling that the new US administration is aiming for a radical policy realignment“, says Deutsche Bank analyst Jim Reed. He believes the new tariffs could cut US economic growth by up to 1.5 percent this year.
According to calculations by Capital Economics, if these tariffs remain in place, they could reduce GDP in China by about 0.5 percent, and in the eurozone and Japan they could affect a decline of about 0.2 percent of GDP. It is very difficult to calculate all the effects that these tariffs will have on the US and its trading partners. But most observers expect economic growth to slow. There will be no real winners in this fight, they are categorical.
U.S. consumers will suffer more, as companies will raise the prices of imported goods. Poorer Americans, who spend a larger share of their income on basic necessities, will be hit hardest by the price increases. And higher prices could lead to higher inflation.
Countries hit by new U.S. tariffs are likely to retaliate by imposing tariffs on American goods. That could lead to more U.S. tariffs. And depending on how much each country is willing to tolerate, these retaliations could quickly escalate into a broader trade war.
Author: Timothy Rooks