Business Reporter, New York
US President Donald Trump is tearing the trade rulebook that has been in place for over 50 years.
His latest swept tariffs, which came into effect shortly after midnight on Wednesday, attacked goods, including dramatic hikes of import tariffs from some of America’s biggest trading partners, including China and the European Union.
The president and his allies say measures are needed to restore American manufacturing bases.
But it remains potentially seismic behavior, affecting more than $2 billion in imports, pushing the US overall effective tariff rate to the highest level in more than a century.
In the US, major consumer goods could see a significant price increase, including an estimated 33% of clothing, and analysts have warned of global economic damage almost certainly as sales, trade cuts and overseas production decline in the US.
As the US stock market is shaking and political pressure is beginning to accumulate, the White House is working to calm the nerves by highlighting the possibility of trade talks, promoting conversations that have already begun with Japan, Vietnam and South Korea.
But Trump has resisted the kind of exemption he granted during his first term, and even if these talks are ultimately productive, country-by-country transactions will definitely take time.
“The main question is… whether there will be negotiations,” said Thierry Withman, global strategist at investment bank Macquarie. “And no one has the answer to it because it depends on the negotiator’s approach and disposition.”
The US already appears to be set to a collision course with China, the largest supplier of imports last year.
The White House said Tuesday that it is moving forward with Trump’s social media threats to add another 50% collection to imports from China, along with the already announced 54% obligation, unless Beijing agrees to withdraw its retaliation.
Liu Pengyu, a spokesman for the Chinese Embassy in Washington, refused to say whether both parties have spoken directly since the threat.
However, China has publicly shown little willing to retreat, describing Trump’s move as “bullying,” warning that “threats, threats and intimidations are not the right way to engage with China.”
“If the US decides not to care about the interests of the US itself, China or other worlds and decides to fight tariffs and trade wars, China’s response will continue to end,” he said in a statement.
The rapid change has shaken American businesses with decades of relations with China, and now paralyzed, realizing that they don’t know how this escalating trade battle will end.
“I would laugh if I wasn’t crying,” said Jay Foreman, a businessman with basic fun at a toy company! It is known for its classics such as Tonka Truck and Care Bear. Most of it is made in China.
He issued a notice to suppliers earlier this week to stop shipping to the US as the US announced that it would attack goods from China on duty from 104%.
“We have to hold our cargo until this is sorted out,” he said. “And if that’s not sorted out, they’ll sell the stock I have in their warehouse and pray.”
Speaking to Congress on Tuesday, Jamieson Greer, head of the US Trade Representative, refused to set a timeline on how quickly the speech will progress.
“The president is fixed in his purpose. This trade deficit and offshoring and job losses have been going too long,” he said, acknowledging that the measures could lead to “difficult” economic adjustments.
“It’s a dramatic, postponed moment of change, but I’m sure the American people will stand up on the opportunity as they’ve done before,” he said.
US stocks resumed their downward slides on Tuesday, giving up early profits spurred by Trump’s comments about trade talks that the fight might see a quick resolution.
The S&P 500 has been trading at its lowest level in over a year, after seeing about 12% of its value wiped out since its announcement last Wednesday.
The stock market from Japan to Germany is also shaking as investors assess the wider impact of their actions. In the UK, the FTSE 100 has dropped by around 10%.
“What I’m really looking at is fear, uncertainty, a lot of questions, a lot of people want to predict what will happen to us next,” said Amy Magnus, director of compliance and customs at a Vermont-based company, one of America’s top five customs brokers. “But I’ve entered an unpredictable world.”
Erin Williamson, vice president of U.S. Customs brokerage for global supply chain operator Geodis, said Tuesday afternoon that uncertainty prompted some of the company’s clients to simply suspend cargo.
“One of the biggest ways you can make sure you’re not putting your business at risk is probably really being held back until the dust settles down,” she said.
Uncertainty is causing risks to the economy, says Ernie Tedesci, director of economics at Yale’s Budget Institute, who has not predicted a recession in the US, but expects tariffs announced so far this year will cost 600,000 jobs and will lead to a hit of around $3,800 for the average household’s purchasing power.
“A lot of the market disruption we saw isn’t about the substance of the economic damages of tariffs, much of it is about uncertainty,” he said.
“Companies and consumers don’t know that tariff charges will be an hour from now… how can they invest or create future plans in that environment?”
Tedeski said he was not aiming for the purpose of a trade war.
“Even if the administration wanted to retreat, how do we save our faces in a mutually acceptable way to all relevant players?” he said. “That’s getting hard by that day.”
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