By: Daniel Assor
President-elect Donald Trump’s proposed policies have sparked significant debate over the past few months among global corporations and international trade experts. Chiefly amongst these policies is his proposed tariff plan, aimed at promoting domestic manufacturing and reducing reliance on foreign countries. Only a few days removed from the 2024 presidential election, we have already seen American and foreign companies take significant actions in preparation for the upcoming Trump administration tariffs.
Although the imposition of tariffs is not a new feature from Trump’s first administration, those close to the President-elect forecast these tariffs to be “dramatically higher.” As of now, many within the Trump camp forecast that Trump’s tariff proposal will consist of a 20% universal tariff on all goods coming into the United States, a minimum 60% tariff on Chinese imports, and potentially 100% tariffs on general Mexican imports with tariffs as high as 200% on Mexican automobiles. Trump’s administration hopes that, through the Reciprocal Trade Act, these measures will encourage domestic manufacturing and reduce reliance on foreign goods. The Reciprocal Trade Act, originally introduced in to the 116th Congress in 2019, would allow the President in certain circumstances, to impose additional tariffs on foreign goods or negotiate with foreign countries to reduce tariffs on United States goods. The President will be allowed to take these actions when the foreign nation is imposing higher tariffs on a good than the United States does when importing that same good or imposes other “nontariff trade restrictions on that good.” However, the President must terminate the tariff increases instituted under the Act if the foreign country no longer applies the higher tariff, the nontariff restrictions, or if imposing these higher tariffs is no longer in the interest of the United States. Lastly, Congress will have the power to reject or cancel a tariff increase instituted under the Act.
Trump’s tariff proposals have prompted varied responses from global companies. Those with intricate global supply chains are particularly concerned about the potential increase in operational costs and disruptions if Trump’s tariffs are imposed. In response to Trump’s election, executives from several global corporations, such as Puma, BMW, and Ikea have stated they anticipate having to make significant changes to their supply chains or face the consequences. Many of these corporations plan on shifting manufacturing volumes to other countries in order to avoid certain tariffs. However, companies which are unable to do so, such as Columbia Sportswear will be forced to raise prices, making it “very difficult to keep products affordable for Americans.” Similarly, CEO of AutoZone, Philip Daniele told analysts on a September earnings call that if Trump’s tariffs are implemented, those tariffs would be passed on to the consumer, highlighting the fact that they generally raise prices in the face of tariffs. Companies like Five Below and Dollar Tree have also voiced concerns about the significant challenges that may lie ahead. As discount variety stores that source most of their goods from China, they will be forced to pass these increased costs onto consumers, impacting many Americans who depend on them for affordable household items.
For the American consumer, many forecast that Trump’s tariffs will result in immediate and harsh economic struggles. Economists estimate that Trump’s tariffs will lead to crippling increases in inflation tightening the pockets of the average American. A recent working paper from The Peterson Institute for International Economics showed that the United States would see a spike in inflation between 4.1 and 7.4 percent higher than otherwise by 2026 and a decline in real GDP between 2.8 and 9.7 percent lower than the baseline by the end of Trump’s term. According to this study, American consumers would be staring down prices that are between 20 and 28 percent higher by 2028. To put this into perspective, within the first year, these tariffs could impose an additional tax between $2,500 and $3,900 on American homes. Families in the lowest through middle quintile of earnings are projected to face the brunt of these tariffs with net after tax losses between 5.8 and 2.7 percent, while the richest 1 percent would still experience net gains in after tax income due to Trump’s proposed tax cuts.
Beyond the domestic impacts, Trump’s tariff proposals have sent ripples of fear crashing across the shores of our European allies. The European Union, already grappling with a sluggish recovery from the 2020 COVID-19 pandemic exacerbated by an energy crisis triggered by the invasion of Ukraine and weakened private consumption, fears that Trump’s tariff proposals could push them further backward and potentially plunge them into another recession. European analysts fear that a universal tariff imposed by their largest market for exports would ignite a trade war many European countries are not capable of fighting. Although the tariffs would likely not impact Europe until late 2025, analysts predict that fear and uncertainty surrounding the Trump administration’s policies could send the European Union into a recession by the end of this year. Analysts have gone as far to say that it would be “Europe’s worst economic nightmare come true.” Germany, in particular, is especially apprehensive about the impact universal tariffs could have on its automobile industry, a cornerstone of the European Union’s economy. A report by the German Marshall Fund estimated that Trump’s tariffs could cost the country $127 billion over the next four years.
Recognizing the impending economic detriment to their borders immediately following the election, European officials have begun gearing up for the oncoming trade war, seemingly unwilling to bend the knee to Trump’s universal tariff proposal. Many European leaders are pushing for the European Union to go on the offensive in order to establish their place in a world where the “U.S. President is not expected to support the traditional, rules-based international order.” (Referring partially to the World Trade Organization’s findings that President Trump’s previous tariff impositions violated global trade rules.) French President Emmanuel Macron has become one of the faces of this movement, proposing that the European Union retaliate with tariffs of their own, potentially sparking a global trade war between Europe, China, and the United States. Others, such as the European Commission’s President Ursula von der Leyen, have suggested getting in front of the tariffs by engaging in preemptive trade negotiations with Trump’s administration. However, many have called the Commission President’s proposal to deter tariffs with the promise to purchase more American liquified natural gas (LNG) wishful thinking. This is because the European market for LNG is already at capacity and demand is likely to steadily decline in coming years with the rise of green alternatives.
Immediate responses to the President-elect’s tariff proposals beg the question of whether they are a calculated bluff to bring foreign countries and CEOs to the negotiating table. Many suspect that the Trump 2.0 administration learned two important lessons from their first at bat. The first being that the original tariff policy failed the American people miserably. The National Foundation for American Policy found that the administration’s policy of raising tariffs increased costs to consumers, harmed the stock market, underdelivered on manufacturing job creation, and was a significant cost to taxpayers. However, the administration also learned that the threat of tariffs is a powerful tool for bringing key parties to the table. Clearly evidenced by the actions outlined earlier in this article, this looks to be the case for the Trump 2.0 administration. Perhaps the Trump 2.0 administration seeks to use the threat of tariffs to renegotiate international trade deals or as leverage in their upcoming peace talks surrounding Ukraine and the Middle East. It appears as though all the chips are falling into Donald Trump’s stack, how he chooses to play these cards are left to be known.
Less than two weeks after the election, speculation surrounding the Trump Administration’s proposed tariff policies has already begun to generate significant unrest. With global corporations and foreign nations anticipated to bear substantial economic consequences, the coming weeks will be critical in observing how they prepare for the incoming administration. Moreover, well-founded concerns regarding the potential consequences of these tariffs such as rising inflation, reduced real GDP, higher costs for American consumers, and the risk of a global trade war have raised questions about President-elect Donald Trump’s ultimate objectives with these policies. Whether these proposals represent a calculated strategy or merely a bluff, all eyes will be on January 20th, as the world awaits the first actions of this new administration.
