Commentary:
On April 9, the day that reciprocal tariffs were slated to go into effect, President Donald Trump abruptly announced a 90-day pause on their implementation. These are tariffs that Trump is imposing on most of the world’s countries, based on their trade surplus with the U.S., existing tariffs on U.S. exports, and Trump’s belief that most countries of the world have taken advantage of the U.S. in trade matters.
Trump’s pause most likely had to do with three factors. The first was the reaction to the tariffs by the falling stock and bond markets, both negative indicators of stress in the U.S. economy. Second was the fact that China did not back down from the tariff war and imposed more and higher tariffs on U.S. imports to that country. Third was the announcement by the European Union (EU), with which the U.S. trades more than $1 trillion per year, that it would be retaliating against U.S. tariffs on European exports by implementing its own tariffs on U.S. goods entering the EU.
It is apparent that the U.S. is not going to easily bully our major trading partners to cut deals with the Trump Administration using the tariff tactic. It was interesting that U.S. Treasury Secretary Scott Bessent stated that Trump’s tariffs pause was “part of his strategy all along, and that Trump “had great courage to stay the course until this moment.” Most economists did not agree and saw Trump’s pause as a way to back down from a fight and a slumping economy that he did not foresee. Trump did allow an across-the-board 10 percent tariff on almost all countries’ imports into the U.S. to stand. He also allowed 125 percent tariffs, 145 percent effective tariff for many products, on Chinese imports to stand, “based on the lack of respect that China has shown to the world’s markets.”
Trump’s theory on tariffs is confusing. He has stated that tariffs will drive manufacturing back to the U.S. because companies will want to avoid having tariffs placed on the products they export to the U.S. He also has stated that tariffs are a way for the U.S. to collect billions of dollars of revenues, which will benefit the U.S. financial coffers, while having other countries pay for the tariffs. Finally, he has stated that tariffs are a way for the U.S. to even the playing field with countries that have “ripped off the U.S.” in trade for years.
The three parts of Trump’s tariff theory are incongruent. If the first part of his theory is true and manufacturing does return significantly to the U.S., then tariff collections will dwindle as fewer companies export to the U.S. In reality, foreign manufacturers have spent a great amount of capital establishing their plants and creating positive relationships with the local government. They have spent considerable time and effort training their workforce in order to produce efficiently and profitably. They also have established their supply chain to supply the plant with raw materials and to move finished goods to their final market. I recently met with two companies from Asia that were exploring setting up production in the U.S., but were struggling with how to most efficiently set up their supply chains, when most of their long-standing suppliers were in Asia, and their supplies were not easily replaced by U.S. companies. As to creating an even playing field, Trump’s approach is more of “my way or the highway.”
I believe that many companies are simply going to ride the wave of uncertainty that tariffs and potential tariffs are creating until Trump leaves office. I have talked to several manufacturers of foreign-made automotive components that have indicated this to me. Wherever they can, they will pass as much of the extra cost that tariffs add to the price of their products on to consumers. I also believe that Trump’s statements that he is willing to cut trade/tariff deals with nations that contact him is inconsistent with companies moving to the U.S. He has thrown under the bus his advisors who have said that Trump has had a specific trade strategy all along by stating publicly that he is “operating on instinct.” Why would companies spend billions of dollars moving their production to the U.S. if Trump eases or backs off from imposing tariffs on their goods? A smart decision-maker would not make any moves until the dust settles, if ever, on tariffs and tariff negotiations.
What is interesting is the way that Trump chose a scorched-earth tariff approach on most of the world’s countries, and why it should not have been a surprise that investors would cause a decline in both the stock and bond markets. It also should not have been a surprise that other countries and trade blocs would fight back. Alternatively, Trump could have been surgical by dealing with specific trade issues with specific problematic countries in order to come to an acceptable resolution. His approach was akin to killing an ant with a sledgehammer
Chinese tariffs and restrictions on exports to that country are a problem for many nations across the globe, not just the U.S. And now, China has raised the stakes by threatening retaliation against nations that cut trade deals with the U.S. that are contrary to China’s interests. This could have the effect of allowing nations to avoid cutting deals with the U.S. based on the guise that they don’t want to pick a fight with China. Why couldn’t the U.S. have formed a united coalition to deal with China? If China is the biggest trade issue, as evidenced by Trump’s upping the ante on the U.S.-China trade war, imagine what could have been done by building a coalition united against China comprised of our traditional allies instead of attacking and insulting them? By taking a diplomatic and respectful approach, it might not be too late for the Trump Administration to do just this.
Jerry Pacheco is President of the Border Industrial Association. Jerry Pacheco's opinions are his own and do not necessarily reflect the views of KRWG Public Media or NMSU.