The measure announced by Trump before the election to impose tariffs of 60% on all products imported from China and 10% on products imported from the rest of the world, causes strong tensions among the United States’ trading partners.
Calmly analyzing the initial situation, the context of Trump’s tariff decisions during his first term and the rest of the announced measures, as well as the book that Trump wrote in 1987, we come to the following conclusion: The announcement of the imposition of these customs duties is more of a negotiation strategy than the declaration of a trade war..
The current starting situation reflects the fact that U.S. products exported to the rest of the world face an average tariff of 6.5%.while products imported by the United States are only taxed with an average duty of 3%.
Before the election, the Republican National Committee advocated the introduction of a “Reciprocal Tariff Act”, whereby no country could export to the United States at a lower tariff than that country charges on American products. Tariff equalization could happen in two ways: by increasing the customs duties applied to products imported by the United States or by reducing the customs duties that the country in question applies to American products.
Analysis of the tariff policies applied by the Trump administration during its first term also makes it possible to predict how it will act on this occasion. The customs duties applied, particularly to China from 2018, had no impact on inflation. Today, despite what has been announced, tariffs should not be general, but chosen strategically so that they have as little impact as possible on inflation and growth. In the “trade war of 2018,” tariffs have focused mainly on capital goods and intermediate goodsor in easily replaceable consumer goods.
Another factor to consider is the time point at which the new rates should be applied. Taking into account that one of the main tax measures is the extension of tax cuts approved in 2017 and which expire at the end of 2025, the need for additional revenue from customs duties begins in 2026. The extension of tax cuts mentioned alone represents around 500 billion dollars which must be covered in order not to worsen the already significant public deficit.
In 2018, the customs duties imposed on China did not lead to an increase in inflation, in particular because a very significant part of them was absorbed by exporters from their own profit margin. Additionally, the strength of the dollar also helped blunt the effect on inflation. Today, the situation could be similar, even if the margin available to exporters to reduce their margins is less.
Trump is a businessman expert in the art of negotiation. He wrote a book in 1987 called The art of negotiating (The art of the transaction). In the book, Trump himself mentions that What characterizes him most is his ability to conclude commercial agreements.. Clearly, he used this strategy in his first term and will use it in his second. In his first administration, he worked with threats of strong tariffs on China, until they reached an agreement.
Now, just as he plans to cut the corporate tax to 15% just for companies that manufacture in the United States, there are also plans to exempt from tariffs for two years companies that undertake to be manufactured in the United States.
For its part, Europe, and in particular Germany, are very concerned about the possible implementation of customs tariffs. Knowing this art of negotiation on Trump’s part, Ursula von der Leyen’s statement on November 8, three days after the elections, is no coincidence: “We still get a lot of LNG from Russia, and why not replace it with American LNG, which is cheaper for us and lowers our energy prices. We can discuss this also regarding our trade deficit” ..
In conclusion, trade policy and the implementation of tariffs by the new Trump administration will not be as simple as the implementation of customs duties of 60% for China and 10% for the rest of the world. There will be a lot of negotiations, but from a position of American strength.
