Donald Trump wants to show that he is serious in his intention to apply customs duties left and right. A few days after being re-elected president of the United States and with two months left to assemble his team at the White House, Trump has already picked up the phone to test the man who was his commercial “ideologue” during his first term . . Robert Lighthizer was the American Sales Representative with which Trump started his first trade war with China in sight. Today, it wants to count again on this tough commercial “hawk” in its ambitious undertaking which applies a customs duty of 60% for products imported from China and a universal duty for the rest of the world of between 10% and 20 %.
Last Friday, the Financial Times reported that Trump had already contacted Lighthizer, one of the few aides the president-elect did not pay during his first term, about returning to the position. According to the financial newspaper’s sources, Lighthizer, who had not yet said yes, was lobbying for a higher position, such as Commerce Secretary or Treasury Secretary. However, Trump has other names for these positions and wants Lighthizer to enter the commercial arena directly. The elected official would again be in charge of commercial surveys and recommended rates.
The possibility that a known arch-protectionist His re-election to take the reins of American trade policy raises concerns in the various foreign ministries, particularly in Beijing, but it is proof that Trump wants to “play hardball”. Although many analyzes suggest that Trump is tossing around these percentages as a measure of pressure to negotiate with his business counterparts, Lighthizer’s mere presence is a powerful signal. A former lawyer for the U.S. steel industry, Lighthizer frequently clashed with the World Trade Organization (WTO), which oversees international trade disputes, calling it a “disaster” that had “failed America.”
Lighthizer’s political experience dates back not to the Trump administration, but to that of Ronald Reagan, a true paradigm for Republicans. In 1983, with Reagan at the White HouseLighthizer was nominated and confirmed as Deputy United States Trade Representative, reporting to Bill Brock. During his tenure, Lighthizer negotiated more than two dozen bilateral international agreements, including agreements on steel, automobiles and agricultural products.
On several occasions, Lighthizer has stated that the use of tariffs to promote American industry It’s a principle of the Republican Party that dates back to the pro-business politicians who founded it. The former 18th U.S. Trade Representative has repeatedly advocated for a “New American System” of trade policy that uses tariffs to offset the U.S. trade deficit and rebuild the country’s manufacturing sector.
The proof of the respect that Lighthizer commands is that most currencies fell Friday, when his name appeared in the FT. “Its name should not have been a surprise, but it reminds us that American protectionism is on the march,” said Chris Turner, strategist at ING. “East a trade hawk and apparently encouraged Trump to step in and sell the dollar to support U.S. manufacturers during the last Trump administration,” notes the strategist.
Inflation, dollar and interest rates
The imposition of significant tariffs by the United States on imported goods and services could have adverse consequences. significant impact both in the inflation of the country as in the value of the dollar. First, customs duties tend to increase the price of imported products, as these additional taxes are usually borne by end consumers in the form of higher prices. This means that imported goods, by becoming more expensive, would increase inflation in the United States, particularly in consumer categories that rely heavily on imports, such as electronics, textiles and certain food products. This inflationary effect could ultimately erode purchasing power, as consumers would be forced to pay higher prices for the same products or seek domestic alternatives, whose prices might not be as competitive.
Paul Donovan, chief economist at UBS GWM, explains that “these taxes will be paid by American buyers of imported goods and, as they pass through the supply chain, they will increase domestic inflation in the United States…a 20% tariff on a finished consumer good is expected to increase its store price by about 8%…however, tariffs could end up increasing inflation with less “impact on the perception of society and have little political cost.”, underlines this expert to assert that Trump will go all-in on customs tariffs even if the economy will suffer the consequences.
Economists who defend commercial freedom assure that protectionism often reduces living standards citizens in general. Not only will the Chinese live less well because they will sell fewer goods to the United States. Americans will also see their well-being eroded because, with the same income, they will be able to purchase fewer goods and services. Resource allocation will be less efficient globally, as the United States will have to produce goods and services for which it does not have a competitive advantage. For this reason, economists who defend free trade in goods and services believe that protectionism not only leads to higher inflation for the protectionist country, but can also take away several tenths of GDP from it.
On the other hand, rising internal inflation would also lead to a reaction from the US Federal Reserve (Fed), which could choose to adjust its policy to stop the rise in prices, possibly increase in interest rates to reduce consumption and expenses. This policy has a direct impact on demand, even if the real problem would be that of supply (the supply of goods which would stop arriving from countries which are subject to customs duties). A rise in rates could therefore have negative effects on economic growth, as high interest rates tend to slow down investment and consumption. Thus, the impact of tariffs on inflation would create a complex challenge for the Fed’s monetary policies, which would have to strike a balance between fighting inflation and avoiding economic stagnation.
Impact on the dollar
As if all of the above was not enough, there is still an impact on the dollar. The imposition of customs duties could result in appreciation of the American currency in the short term. This happens because by increasing the prices of imported goods, the United States would reduce its imports, thereby reducing the trade deficit. A smaller deficit can strengthen the dollar by reducing the amount of currency leaving the country to pay for foreign goods and services (the global supply of dollars is reduced). Additionally, if the Fed raises interest rates in response to rising inflation, it would attract foreign capital to the United Stateswhich would further boost dollar appreciation as investors seek out assets offering higher yields.
However, in the long term, a sustained appreciation of the dollar could create competitiveness problems for American products abroad, since they would be more expensive for foreign consumers. This could reduce exports and negatively affect the manufacturing sector and other US export-oriented industries. Furthermore, reduced competitiveness could offset the benefits of an improved trade balance in the short term, making tariffs less effective as a trade policy tool.
In short, imposing significant tariffs on imports into the United States would have an inflationary effect by increasing the prices of imported products and could lead to an appreciation of the dollar. Although these effects may seem beneficial in reducing the trade deficit, their impact on inflation, monetary policy and international competitiveness would complicate the economic outlook of the country.
