
President Trump’s second term in the White House has arguably already pushed international trade into the global spotlight on a scale that even rivals Brexit. The old Brexit arguments revolved around not only trade but also immigration, sovereignty and finances. To date, Trump’s presidency revolves around one word.
Tariffs.
The tax placed on goods when they are imported which varies depending on the importing country, the product, and the country of origin for the goods.
Suddenly tariffs is a term that is not merely being pushed by President Trump but is being waved around like a weapon that has rocked stock prices and world leaders across the globe.
Trump has shown this weekend that he is not scared of threatening tariff rises to get what he wants. An agreement with Canada and Mexico was reached at the eleventh hour resulting in a pause on tariff rises of 25% for at least 30 days. However, a 10% tariff rise has been introduced on China which, in turn, has seen retaliatory measures from China.
The one Ace that Trump may believe he does hold is that, if a country takes the same stance as China, America is one of the only countries in the world who have the potential to be self-sufficient. If an increase in tariffs resulted in American businesses buying from more American producers or opening American factories then that will benefit the American economy.
Either way, Trump sees it, in the long term, as a win-win for America.
However, due to the complexity of supply chains, the impact of such trade wars could be felt in every corner of the globe.
For instance, if Trump does follow through on his threat to introduce tariffs on the EU, that will impact European businesses who export to America. How many of these European businesses will have a UK entity as part of their supply chain?
Similarly, the UK’s recent accession to the CPTPP has increased the appeal for Mexican and Canadian businesses to incorporate UK businesses in their supply chain. Again, uncertainty on the future of trade with their powerhouse neighbour will not encourage these businesses to grow.
This supply chain impact would be felt across the globe, not just in the UK. When businesses are faced with uncertainty they are more reluctant to invest and grow, whether that be by exporting into new markets or importing more from international suppliers.
From a consumer point of view, if a business is going to incur higher tariff rates on the goods they import, they need to appreciate that a business only has a couple options:
Import less to mitigate the amount of duty that will need to be paid. This reduces stock and the levels of supply which can cause a rise in prices as demand outweighs supply
A business can look to absorb the tariff rises by reducing their profit margin. This could impact a business's ability to grow and hire new staff
A business may decide that they need to pass the tariff rises on to consumers.
Whichever option a business decides to take, consumers and individuals will be impacted either directly or indirectly.
Businesses require certainty and the reduction of unnecessary trade barriers. Consumers need stable prices, and economies need these consumers to have disposable income which they are looking to spend.
Creating a trade war has no benefit for businesses or consumers in any country, including America. There are no winners in trade wars, certainly not businesses and certainly not everyday people.
Image Credits: Donald Trump via Library of Congress
Claudia Sheinbaum via Claudia Sheinbaum Facebook
Justin Trudeau via Prime Minister of Canada
Keir Starmer via UK Parliament
Ursula von der Leyen via Wikipedia Commons
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