Then, of course, there are the Trump tariffs.
Last week, the president announced a 25 per cent tariff on all imported vehicles, and while he said at the weekend that he “couldn’t care less” if car makers raised their prices, US consumers are going to care if their new small car is now several thousand dollars more expensive or their new SUV costs them what industry analysts have estimated could be $US10,000 to $US15,000 ($15,300 to $23,800) more.
While Trump said the tariffs would force Americans to buy American-made cars, the auto industry and its supply chain are highly globalised, and it would take years for US and foreign car companies to build the plants in the US that could produce the volume of vehicles now imported.
He has, of course, already imposed a 25 per cent tariff on imports of aluminium and steel, a similar rate on imports from Canada and Mexico, a doubling of the tariff on imports from China to 20 per cent (while threatening more) and mooted tariffs on copper, timber and pharmaceutical imports and other sector-specific measures.
Now, on Wednesday in the US, he’ll announce the reciprocal tariffs.
Ostensibly, those are supposed to simply match the tariffs imposed on US exports by the countries involved, but Trump and his economic team have suggested they will take into account non-tariff barriers to US exports and referred to the use of value-added taxes and digital services taxes within Europe and elsewhere.
They are also looking at things like product safety, local content requirements and other non-tariff measures like Europe’s regulation of digital technology, where America’s tech giants have attracted multibillion-dollar fines, or Australia’s News Media and Digital Platforms Mandatory Bargaining Code.
Trump sees tariffs as a zero-sum game, with a winner and a loser determined by trade surpluses and deficits. In reality, they are a game where no one wins, albeit some will lose more than others.
While there are some exceptions (notably India), most of the world’s trade attracts minimal, if any, tariffs. It is only if the definition of reciprocity is stretched to include non-trade measures – with massive intrusions into the domestic economic and social policies of other countries, including America’s closest allies – that Trump’s tariffs will have material effects or raise material amounts of revenue.
Trade hawk and White House aide Peter Navarro told Fox News on Sunday that the new tariffs would raise more than $US6 trillion over the next decade with the tariff on auto imports, which goes live on Wednesday, generating $US100 billion a year.
If that were accurate, given that Trump’s tariffs will be paid by importers – not the exporters – and that most of their cost will ultimately be borne by US consumers, it would be the biggest peacetime tax increase in US history.
Trump’s tariffs are set to send car prices surging in the US.Credit: Andrew Harrer
There is speculation that the initial round of reciprocal tariffs will be imposed on what Trump’s Treasury Secretary, Scott Bessent, has labelled the “Dirty 15,” or the 15 per cent of America’s trading partners with the largest trade surpluses with the US. China, the European Union, Mexico, Vietnam, Taiwan, Japan, South Korea, Canada and India head that list.
The rest of the world could be dealt with later or by applying Trump’s original plan of a universal baseline tariff.
Whatever form they take, and whether or not their direct cost is as substantial as Navarro claimed, they will be very disruptive to US and global supply chains, negative for US and global growth and, for the US and economies that retaliate, inflationary.
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Trump sees tariffs as a zero-sum game, with a winner and a loser determined by trade surpluses and deficits. In reality, they are a game where no one wins, albeit some will lose more than others.
America’s trade deficit is driven more by macro factors – a dearth of domestic savings relative to investment and consumption – than by the predatory actions of others.
It is doubtful that anything Trump does will materially shrink America’s trade deficit unless it results in a substantial reduction in US living standards and an America that lives within its (diminished) means. He might inadvertently achieve that.
