Questions are swirling about what President Trump's trade policy will be in the wake of the failure of Day 1 tariffs on traditional U.S. trading partners.
President Trump released a trade policy memo on his first day in office, directing federal agencies to examine U.S. trade with China and reevaluating the latest trade agreement between the U.S., Canada and Mexico, but also ordering new import taxes. It didn't reach that point.
In response to the memo, he threatened to impose 25% tariffs on Canada and Mexico starting February 1, and suggested a 10% tariff on products from China, compared to 60%. This is a significant reduction from previous proposals, which included tariffs of 100% and 100%.
Business groups and industry leaders now want to know what the final trade package will look like. Here are five questions facing President Trump on trade.
Timing, size and scope of new import duties
The biggest questions for businesses are how big the tariffs will be, how many countries they will apply to, and when they will go into effect.
After pledging to impose day-one tariffs on Canada and Mexico, President Trump on Monday pushed back the start date to February 1. On Tuesday, it lowered the size of the tariffs it plans to impose on China to 10%.
Analysts took note of the downgrade and questioned whether President Trump was becoming less enthusiastic about engaging in a trade war.
“This latest number is lower than what was threatened in previous months, and could be a sign that President Trump is wary of escalation,” said NerdWallet economist Elizabeth Renter. “This shows that there is,” he said in the commentary.
It took two years for Trump to impose tariffs in January 2018, after calling for a renegotiation of U.S. trade deals ahead of his first term.
It took nearly three years to renegotiate the NAFTA agreement, which became the United States-Mexico-Canada Agreement (USMCA).
What does President Trump want from the new USMCA?
When President Trump reworked NAFTA into the USMCA, the new deal added labor protections omitted from the original agreement, helping secure support from labor unions and some Democratic lawmakers.
“Unlike labor rules in previous trade agreements, where sanctions for labor rights violations were paid by governments, individual companies now face the consequences of trade agreements. [updated] In an analysis of the updated agreement, trade advocacy group Rethink Trade wrote:
President Trump's trade memo on Monday ordered a reassessment of the USMCA based in part on its impact on workers and hinted at potential labor accommodations.
“The Office of the United States Trade Representative shall assess the impact of USMCA on American workers, farmers, ranchers, service providers, and other businesses,” the memo said.
President Trump this week nominated a Republican to serve as acting secretary of the Department of Labor, the National Labor Relations Board, and the Equal Employment Opportunity Commission.
A major overhaul of the Biden administration's labor policies is expected, including regulations on socially motivated investments, overtime, and who is designated as a contractor rather than an employee.
How will companies adjust?
Some companies have expressed concerns about the place of trade among the Trump administration's priorities.
“There are multiple conflicting reports on the potential implementation of universal tariffs,” Seema Shah, a strategist at Principal Asset Management, said in a commentary. “The severity and timing of the tariffs remains highly uncertain, as the president's inaugural address provided few details about his tariff plans.”
Amid concerns from business groups that tariffs could fuel inflation, JPMorgan Chase & Co. CEO Jamie Dimon said that if tariffs are good for national security, “Please stop it,” he told the nation.
“If a little bit of inflation is good for national security, then so be it. So get over it,” he said at the World Economic Forum in Davos, Switzerland, as reported by CNBC. Dimon said in an interview.
Supply disruptions caused by the pandemic have prompted the Biden administration to encourage companies to move supply chains away from some Chinese production sites, a move that could also prompt new tariffs on China.
meanwhile some research While it is clear that U.S. companies switched to factories in Vietnam and Mexico during this period, it is unclear whether these countries simply took a middle ground by maintaining sourcing in China. Uncertain.
“Rather than following every threat (which may not materialize), the basic question is: Any 10% tariff is likely to directly increase U.S. consumer prices by 4%. Second The effects of phasing (less competition, profit-driven inflation) threaten greater inflation, and selective tariffs could be avoided (up to a third of China's exports to the US could be rerouted).'' Economist Paul Donovan said in an analysis.
How long will tariff hawks wait?
Tariff advocates are backing President Trump despite the delay, but are also pushing for a comprehensive tariff package.
“Unlike most career politicians, President Trump has an excellent track record of delivering on campaign promises, and we fully expect him to implement strong trade and tariff policies.” said Nick Iacobella, vice president of the pro-tariff Coalition for Prosperity. America writes in its commentary:
Increasing U.S. industrial capacity is a motivating factor for many U.S. protectionists. The Biden administration has spurred a boom in factory construction investment and revived the term “industrial policy,” but these efforts have yet to lead to a recovery in U.S. factory jobs.
Will customs duties be factored into the settlement?
Meanwhile, Republicans in both chambers of Congress are working to pass sweeping legislation on border security, energy production and taxes through the reconciliation process, which does not require Democratic buy-in.
Although the president can enact tariffs without input from Congress, he may want to work with Congress on them because it would generate revenue that could be used to offset what is expected to be a very expensive bill.
Just extending the 2017 Trump tax cuts, which are set to expire this year, would increase the budget deficit by more than $4.5 trillion, according to the Congressional Budget Office. President Trump has promised additional tax cuts on top of the tax cuts, and tariffs could provide relief.
