Types of Trump Tariffs
Trump has unleashed confusion, as is his strategy, by threatening everyone with tariffs. As those affected by it, we need to look at method in the Trump's tariff madness. Lets dive in.
Often, we must walk around what seems like a dense mess of a forest
till we see trees planted in perfect alignment. - Ardy
Trump is smart. There is a method to the confusion he unleashes. So we need to find it. Essentially we can classify Trump tariffs into a few buckets.
i] Anti-China Tariffs
A lot of Trump 1.0 policy action went into creating a mutually agreeable reset in terms of US-China relations. Things did not go well and there were quite a few geopolitical showdowns between these two powers. It appears that Xi had made promises to Trump, the US i.e., and reneged on the promises.
So Trump 2.0 is strongly focused against China. He is not even negotiating with them openly. He is ready to negotiate with Putin but not with Xi. That is saying something.
Thus, if you are connected with China, you are going to be on the Tariff list. If you are good with the US, then you get tariffed for the China-related stuff. If you are in bed with China then you get tariffed wholesale.
ii] National Security Tariffs
Trump has recognized the need for certain critical industries and manufacturing capability as core to national security. This has been flagged when certain Chinese components were found in the US F35 fighter jets and even in the British Ships.
In addition, there are certain industries critical to self-reliance. These include Steel, ship building, energy and others. Trump intends to get all of these industries back in the US and he will ensure they are healthy and profitable. We have to expect punitive tariffs on anything threatening this goal.
iii] US Jobs boosting Tariffs
Creating jobs inside the US is critical plank of Trump policy. However, he does not want all jobs. He wants jobs in the industries that already exist in the US. This is protectionism under different name. Trump has eliminated subsidies and programs like CHIPS act and will be relying on tariffs alone to bring these jobs back.
As I explained previously, creating jobs is not easy and tariffs or even encouragements like CHIPS act will not create as many jobs as are required. The manufacturing that comes to the US will be more automated (less labour intensive) and focused on high-end employment where labour competition is low.
iv] Fair-trade or Tit-for-Tat Tariffs
One of Trump’s belief is that countries have taken advantage of the US consumer. He is not wrong though his assessment about mechanics may not be accurate. Nevertheless, countries have artificially kept currency low against the dollar to allow their exporters undue advantages. They have also imposed restriction on domestic consumption keeping wages and other costs artifically lower making their exports competitive artificially. Trump is going after those cases.
This covers much of Asia, Japan and China.
v] Tariffs as a threat
As Kyle Bass points out, there are cases where Trump has used threat of exorbitant tariffs to bring parties to negotiating table. This is applicable to Canada, Mexico and others will soon join this group.
As we progress into the Trump term, we may see threat of such tariffs creep up suddenly directed at particular countries that Trump wants to bring to the table.
vi] Revenue generation
Trump has stated a “balanced budget” as one of his goals. This is not easy as it sounds. The US has been sending money globally for variety of reasons. Trump has cut a few of them - US AID. US donations and financial support is already under scrutiny.
Trump also considers tariffs as means to reduce, if not eliminate, this gap. This is price for accessing the US consumer for global producers.
In Sum
At this point we are simply trying to understand the breadth and scope of Trump tariffs. The nature of tariffs, how they are drafted, how they are implemented and how the target countries and companies react to them will eventually determine their success. Trade economics is very complex and real action is in second and third order effects of every action. So lets not jump to conclusions and analyse these exciting developments dispassionately.
Notes:
Kyle Bass highlighted three in his X-post. But there are more.
