Current Affairs

Trump wants the trade deficit reduced and by putting tariffs on imports Trump believes he can reduce the US trade deficit. But tariffs are a tax on the consumer and an added tax for articles that will be entering the US market. It really is a question of whether the President understands what a tariff is. But tariffs placed on the Chinese, Canadians and Mexicans will eliminate the ability of US overseas manufacturers to lead the state out of a self imposed recession.

Trump’s jingoistic call for ‘America First’ disregards the argument where American manufacturers invest in the local economy rather than off-shoring. The arguments that can be found in China, Mexico and to a degree Canada is that manufacturing has interwoven supply chains that are part of a larger manufacturing process and the failure of the US argument is that the dollar will be strengthened and currencies under the threat of tariffs will lose value, which leads to manufacturers in tariff affected economies competing on a scale US manufacturers cannot compete. Though the Fed will be getting the extra tax through tariffs US companies especially bankers will look outside the US for investment opportunities as the dollars will be stronger.

Wealth will flow out of the US market, which has been held artificially high by the tariffs and strong dollar and US manufacturers will struggle to compete with international companies – (even though raw materials will be cheaper)- and domestic manufacturing will be challenged by the strong dollar and ability of international manufacturers with lower manufacturing costs and weaker currency entering the US market (i.e Bangladesh). The idea Trump is making the US more competitive will in time lead to manufacturers being less efficient and though domestic and efficient manufacturing will compete at cost and manufacturers will not be able to compete on international markets because of the strong dollar.

Countries like Germany, Britain and to a degree France have massive investments in the United States, but the idea that Americans will not continue to buy cars, whiskey and champaign will depend on the US consumer and whether they recognise European products as luxury items. Trump’s argument is erroneous, it neither challenges the US banker to invest in US production or challenges US manufacturing from its insular base to compete internationally through new manufacturing process’.

But what Trump has done is wake up the nationalists whose jingoistic calls of retaliation have circumvented Trump’s arguments that negotiations should take place. The failure of Trump’s argument is that it fed into the rhetoric that he put on the airwaves and the shock and awe argument fed his voter base without realising the disgust of the international markets in his plans. But US manufacturing has been undone by its inability to be productive and a realisation that the US economy is dependent on trade that makes up two-thirds of consumer spending, must be a realisation that US manufacturers cannot compete on product quality at cost.

Christoph Bundi speaking to the BBC, believes that tariffs are an own goal against US manufacturing. There is a realisation that pain will be inflicted on all three economies, including the USA, which will reel from the costs of the tariffs. The nationalism argument means Canadians will remove made in US products from the shelves, and there will be a concentration to buy Canadian or Mexican among the citizens of the countries affected by tariffs. But it is Trump’s belief that jobs can comeback into the US through tariffs that challenges those who believe tariffs are a means to an end, but the wider argument of Trump is for a negotiated outcome that includes stopping immigration and fentanyl entering the US.

The outcome of the tariffs has seen the dollar strengthen and manufacturing stocks weaken across the US. The US has seen the stock index on car manufacturers drop between five and seven percent, which is the second shock for those investing in manufacturing after the Deep Seek revelations caused the NASDAQ to dive. But it is Trump’s refusal to stick to a legally binding argument that has been most challenging for the members of NAFTA.

Janis Varoufakis believes Trump is very aware of the pain that tariffs will place on the US economy, but he is also aware that the revenue gained from US tariffs will circumvent the Congress and Senate and give him a war chest. But it is also his realisation that nations that have been put in the position of having to accept tariffs, leaves the US vulnerable to the same arguments from these nations, which is reminiscent of the great depression where tariffs damaged markets.

Trump saved face with arguments that had been put in place under Biden and reversed the tariffs on Canada and Mexico. There was a realisation that Canada and Mexico would not kow tow to the the bullying, which had dared Canadians and Mexicans to stand up to the fiscal might of US. The idea that this was the first shot in a negotiation misses the point of what Trump did and that was lose face, lose market confidence and lose manufacturers confidence.

The jingoistic call of lets make America great again has proven to be a cry to loud and the reality of the jingoism is that American industry will suffer from tariffs being put in place on the countries that had already agreed a policy for trade that had been signed in 1994. NAFTA is not torn up yet, but Trump’s inability to stick to binding agreements challenges where US policy will be heading in the future. The idea that Trump was using tariffs as a negotiating ploy has certainly backfired on Trump and the US markets. The world and US markets were tipped into a significant slump by the ravings of an unbalanced mind and the damage that was done proved short lived after Trump backtracked.

Richard Tice in the UK, a reform MP argued that Trump’s argument was a ploy to open negotiations, but the argument has backfired terribly, the bluff was called and the hand was thrown away. The failure of the US to find a means to manage its manufacturing block is already looking weak, but the realisation that the twenty five percent tariffs put on the Canadians and Mexicans severely challenged the markets, and though Bob Diamon argued that this was an opening shot to a negotiation the New York Stock Exchange lost four percent of its valuation and it was not until it was explained to Trump how intertwined the Mexican and Canadian markets are with the United States did Trump try and find a bogus face saving solution.