One day, Donald Trump was threatening a multi-prerontal war with Canada, Mexico and China that would make the world economy in an unexplored territory.
Twenty -four hours later, we are in a fairly different place with prices – or taxes – against neighbors and trade partners closest to America for 30 days.
But the 10% prices on all imports of goods from China continued, and Beijing responded in kind. So, what are the potential economic consequences of these opening salvas and that could be transformed into a wider trade war?
China is already subject to important American prices and has been since Trump’s first term. But the general nature of the new samples today from the White House on each goods from China – toys to mobile phones to clothes – is new and significant.
Pékin’s promised tariff reprisals – including new imports from imports from the United States from oil, agricultural machines and certain cars – are much less radical. However, reprisals take us into the arena of action in tit-for-tat, where the country which experiences the prices considers that it has no choice but to retaliate to show its own citizens, it cannot be pushed by a foreign power.
This is the definition of the dictionary of a trade war – and economic historians warn that they tend to generate their own momentum and can quickly become uncontrollable.
Trump used almost all justifications under the sun for prices, increased tax revenue more to improving US manufacturing and rebalancing. But one thing that the last days confirm is that the new president considers them as a powerful means of obliging other nations to do what he wants.
He threatened massive and punitive prices over Colombia when he initially refused to accept the American flights of his deported nationals, but he raised the threat when Bogota nodded.
Yesterday, the White House could also indicate the response of Mexico and Canada, as pricing threats give results. He had threatened to ride Roughshods on his own North American free trade agreement unless these nations are tightening on border control. Although the additional quantity of these two countries promised yesterday on border security compared to what they already did is open to the question.
However, the problem with the White House using price threats in this way is that if other countries do not retreat – or if the agreements are not concluded – Trump may well think that he has no other choice than to follow or risk losing all credibility. And the targeted country might think that it must respond with its prepared countermeasures, even if they preferred not to do so.
This high -risk dynamic – where things could slip out of control in an atmosphere of mistrust and political pressure – is the reason why many analysts and economists are far from being comforted by the way things have happened with Mexico and Canada this week.
The other reason for which many economists fear Trump’s intimidative tariff diplomacy is its potentially frightening impact on business investment and confidence. American automobile companies have a deeply integrated industrial base across America, Mexico and Canada. Automobile parts cross these borders several times in the vehicle assembly process.
The perception of 25% of prices on each of these movements would be disastrous for these companies. These North American prices have been interrupted for the moment, but it is very difficult to see us or Canadian automotive executives who undertake to invest more in these cross-border supply chains as soon as-and perhaps for many years to come.
This will have negative implications for their productivity – as well as for the salary of their employees in the three countries. The point of view of many economists is that the cross -border supply chains make these companies more productive than they would be otherwise and this increases the wages of American workers compared to their manufacturing place in America.
These same effects apply to a global scale. In the light of Trump’s pricing threats against the European Union, how many American companies are likely to continue the investment planned in Europe – and vice versa?
Countries such as Vietnam and Malaysia indirectly benefit from American prices imposed on China during the first presidential term of Donald Trump, while multinationals have changed their manufacture of China and in their territories to avoid taxes and continue to export to America. But what happens if Trump now threatens the prices against them too?
The enormous uncertainty of Trump’s pricing threats has injected into the world economy – even if they are not always translated into new real taxes – will probably already do damage.
