“Rates is the most beautiful word of the entire dictionary.” It was with these words that Donald Trump expressed his opinion on this measure just two days before the American elections in a speech to the Chicago Economic Club. This true declaration of intentions clearly shows that taxes on foreign products will be one of the pillars of his economic and commercial policy, which he already did during his first mandate, but which seems much more aggressive in this second stage.
Although it remains to be seen how these measures will reach their next stage, the reality is that during the electoral campaign and before, the New York tycoon has already explained How will they organize prices for different countries? of the world. Trump believes the time has come for what he describes as a “ring of protection” for the US economy to come into play, not only preventing the entry of foreign products, but also funding the executive branch on other fronts, like tax cuts along the way. .
The “universal rate of 10%”
The first thing the president seems to have made clear is that a blanket, automatic 10% tariff would be on the table for all countries. This would be the minimum amount, but it would also open the door to consideration of a 20% base tax. A measure which would be the aperitif and the basis on which to build their offensive country by country. just like he did in his first step. He announced this measure in an interview for Fox, but has reiterated it several times since 2023. “It’s a ring of protection for the country’s industry,” commented the Republican candidate in an interview.
In this sense, Pantheon Research experts comment, in the heat of electoral victory, that this measure alone will have an impact on the PCE deflator (the Federal Reserve’s fetishistic indicator). by 0.8 percentage points. “This measure would leave core inflation close to 3% by the end of next year.” Experts warn that this calculation comes from the estimate that the dollar will only appreciate 5% with Trump’s policies, that the trade balance remains the same as this year and that retailers absorb 20% of the tax, as it is was produced last year.
However, the firm’s experts believe that the risks are “clearly on the rise” because the countries concerned could react. According to S&P Global, “tariffs can generate higher costs that are absorbed by consumers to varying degrees, although their impact may vary depending on the sectors and countries involved.” In a 2023 report, the United States International Trade Commission determined that tariffs implemented in 2018 by Trump on imports from China increased the price of petroleum products.e products manufactured in the country by 0.2% and the value of national production by 0.4% on average between 2018 and 2021. This is why China has become the big star of customs tariffs.
The war against China: customs tariffs of up to 2,000%
Trump clearly proposed 60% tariffs on all Chinese products. Beyond that, all is unknown, In fact, during his speech at the Chicago forum, he openly talked about imposing taxes that could even reach 2,000% for specific products, although he did not specify which ones or under what conditions they would be imposed. He also talked about 100% or 250% options. “The higher the tariffs, the more likely it is that the company will come to the United States and build a factory so they don’t have to pay them,” the candidate said.
In any case, we do not know exactly what its plan will be beyond a general increase of up to 60% for all its products. What is clear is that, as he did in his first step, apart from this measure he would prepare. an expansion of those already granted on critical products. In fact, it would add even more pressure to the already ongoing battle against Beijing. Joe Biden abandoned the tariffs that Trump had agreed with Xi Jinping in their unchanged phase one agreement.
In Trump’s first step, he imposed approximately 60 billion dollars in customs duties to various products from China, from technology to agriculture, in the face of alleged illegal competition practices. In 2018, this measure intensified to reach a customs duty of 10% on $300 billion of Chinese products. After the phase 1 agreement in 2019, there was a commitment to purchase products to partially relax this measure, but as the negotiations did not take further steps, the situation remained the same.
“Any new tariff on China will be much more damaging”
That same year, the Biden administration launched a new battery tariff of between 25% and 100% for electric cars, chips and other products such as critical metals or solar cells. Trump’s plan would tax specific products, as he did in his first step.
These customs duties will have a very significant impact in the United States, but also in China. “US tariffs under threat They could also have serious consequences for China. Chinese exporters survived Trump’s tariffs by keeping prices low, rerouting to third countries and finding new markets. Repeating these answers will be difficult. With little prospect of another major revival of consumption in developed economies and with Chinese authorities reluctant to allow the yuan to depreciate so as not to trigger capital flight, any new tariffs will likely be far more damaging. Gavekal Research.
What will happen to Europe?
Europe, for its part, will be one of the regions most exposed to customs duties. Donald Trump himself mentioned that the countries of the region will be one of its objectives. “I’ll tell you one thing, the European Union looks very good, very nice, doesn’t it? You see a great atmosphere with small countries coming together,” he said during from a rally in Pennsylvania. “But they don’t take our cars, they don’t take our agricultural products. And in the meantime, they sell millions and millions of cars in the United States. This is not possible, they will have to pay a very high price .” price.”
From Gavekal Research they explain that this can be particularly damaging for a Europe that has entrusted itself to the United States as one of its economic lifelines, especially for its industry, whichand is already suffering in countries like France and Germany. “The EU has generated a trade surplus despite a drop in purchases from China comparable to that of five years ago and this resistance has come thanks to exports to the United States, a performance which could be threatened if Trump wins the elections.”
The EU trade surplus in 2023 was 38 billion dollars with the United States. Exports to the United States reached 368.7 billion euros, the highest figure since records began. BNP Paribas comments that a sustained increase in exports to the United States and the United Kingdom has offset, for the moment, the rapid deterioration of the trade balance with China.
In this sense, even if Trump has not announced what specific tariffs he will launch against Europe, the continent has the first stage of his mandate as a reference. At that time, the president had waited until 2019, when he had already reached a certain relaxation in relation to China and, taking advantage of a ruling by the World Trade Organization on European aid to Airbus, the president announced tariffs worth 7.5 billion dollars on all types of products. 10% to airplanes and 25% to certain agricultural products. These measures were particularly harsh for Spain since they concerned key products such as olives and olive oil or wine.
The huge taxes imposed on Mexico to “bring it to its senses”
As for other countries, Trump didn’t mention much outside of Mexico. The southern neighbor has already been alerted during various gatherings. “Mexico represents a huge challenge for us right now, huge. China is building huge car factories in Mexico, and they’re going to build them, and they’re going to take these cars and sell them to the United States,” warned the president. . According to Trump, this poses serious risks for the American auto industry. “It will mean the end of Michigan, the end of South Carolina.“Frankly, this is the end of everything,” he said, suggesting that entire regions of the country could be devastated if these imports are not stopped.
In this sense, Trump was particularly clear. In the same speech, two days before his election in Pittsburgh, the candidate declared that “everything you sell to The United States will have a 25% tariff“This figure, according to the president, would be a punishment for the smuggling of drugs across the border. They also said that if it does not help immigration to the United States, taxes could go up to 50 %, 75% and finally 100% In any case In this case, attention has focused on companies trying to re-export Chinese products through Mexico, a measure that, if detected, already threatens to collapse. accompanied by a tax so high that it will mean complete inability to enter the market.
“Inflation would probably be affected by two points (if there was a response from other countries)”
In summary, adding in all the tariffs Trump may add, Pantheon Research estimates that in the worst-case scenario with responses from China, Europe and other equivalent countries, the baseline PCE “probably will be boosted by 2 points“. Finally, analysts believe that this, added to the strengthening of the dollar (which harms exports), will generate “a new recession for the manufacturing sector”, which will not lead to a total recession of the economy since “this does not represents only 10% of GDP. However, they are clear that the new round of tariffs will lead to an era of “slower GDP growth in 2025 and beyond.”
Unicredit analysts are of the same opinion, who in their latest report comment that the most likely scenario is that Trump includes a set “extended tariffs and retaliation, something that will increase the deficit.” The Italian bank defends that “the idea that it is only a threat and that it functions as a bargaining chip for rapid agreements with China and Europe is only an illusion “.
