As the world watches, Donald Trump is again shaking up global trade. His latest move—imposing new tariffs on key U.S. trading partners—sends a clear message: reciprocity or retaliation.
This prospect worries the American markets and the country's leading suppliers, who must find ways to reduce their dependence.
A significant challenge for some of them.
The door to negotiations remains open
Trump announced that from April 2, the European Union, China, Brazil, India, neighbouring Canada and Mexico, and South Korea will be targeted by tariffs and other non-tariff barriers identical to those imposed by these countries on American production.
Undoubtedly, such reciprocity will hurt some very badly and may disrupt the production and supply chains of the United States and world trade.
But Trump remains Trump, and the door remains open to negotiations. As soon as the new tariffs were announced, U.S. trade chief Howard Lutnick hinted that adjustments could be made, particularly for Canada and Mexico.
At the same time, the American automotive sector will be exempted for one month so that it is not at a disadvantage against its foreign competitors.
Therefore, the White House knows its policy will not be rigorously enforced. But it is putting pressure on its partners, who will have no choice but to negotiate. Japan's absence from the mentioned partners is a clear sign. Japanese companies (Softbank in the lead) have promised hundreds of billions of USD of investment in American territory, so they are not currently affected by this wave of customs duties.
Tariffs won't change the world
If the White House does not hesitate to mention customs duties and use them as a means of pressure, it is because it understands that they will not change much. Today, if the tech giants continue to depend on China, it is not for low wages but because they find a set of skills and an ecosystem they cannot find anywhere else. The country will, therefore, remain an essential partner for the United States, whatever happens, as will Canada, for its hydrocarbons and raw materials, or Mexico, for its proximity and cheap labour.
Tariffs alone will not balance U.S. public finances, either. According to the Tax Foundation, they are expected to bring in some USD 142 billion this year. However, the U.S. public accounts deficit is expected to be 1865 billion USD.
Tariffs will not cause an explosion in inflation in the United States, either. First, it is unclear whether the consumer will bear all the increased prices of imported products caused by customs duties. The weakening of the currencies of many of the United States' suppliers offers the latter an opportunity to absorb part of these tariffs. Other players in the distribution chain could also absorb some of it.
Finally, it should be remembered that these tariffs only apply to imports of goods and that the share of imported goods in the US GDP is only about 10%. A price increase on this small part of GDP – as important as it is – which will also be borne by both local and foreign actors- should have a limited impact on inflation. It is, therefore, no coincidence that Donald Trump insists on cheap energy. He knows full well that a cheap barrel could be enough to offset most of the impact of tariffs on inflation.
Finally, the United States' trade deficits will unlikely be eliminated soon. Americans' wealth has risen sharply since the economic and financial crisis of 2008-2009, while Europeans' have stagnated, and Asian demand is struggling. Under these conditions, where U.S. demand is much stronger than elsewhere, trade deficits will likely remain a reality.
A problem for others
While the United States will not suffer too much from the tariffs imposed by the White House, they pose a major challenge for the country's suppliers.
China has understood this well. Having adopted a growth target of 5% for the current year, the Beijing authorities are focusing on developing their domestic market to reduce dependence on the American market.
For others, such a transition is more problematic. In Europe, the bet on the defence sector will most likely be at the expense of the welfare state. However, households that do not have visibility on the future of pensions, education or the health system will not be encouraged to consume more.
In addition, any negotiations between the EU and the United States will be complex. Europe will find it challenging to accept American GMOs and many products (particularly automobiles) that do not meet European standards. While the United Kingdom—which exports few goods to the U.S.—will find an agreement, provided that it opens its market to American production, the challenges that an agreement poses for the EU are much more significant.
Finally, how can we not cry over the fate of countries such as South Korea? Dependent on the United States for its security, the government is banned from exporting its technologies to China and is subject to American tariffs.
Small impact for the U.S., significant for the world
It is often said that the U.S. dollar is the currency of the United States and the problem of others. The same applies to tariffs, the impact of which will ultimately be limited for the United States, both in terms of tax revenues and inflation, but which will resonate with trading partners whose domestic markets are struggling.
Of course, the door remains open to negotiations, and at this stage, it is difficult to measure the exact impact of the coming trade battles. However, it is difficult to see how the United States, which remains the world's reference market, would not emerge as a winner from this tug-of-war with weakened partners. The uncertainty caused by customs duties may cause some jolts in the coming months. But fundamentally, it does not call into question the position of the United States, which remains present in all our portfolios.
