Trading Slips 'N Slides: The 25,000-Euro Question on Trump's Trade War Chaos
Trade disputes initiated by Trump frequently result in unfavorable outcomes.
Keep it Casual No uptight jargon here – just a down-to-earth look at the mess Trump's trade war is causing!
There’s no denying it – President Trump's trade policies are giving the American economy a good ol' fashioned kicking. And other countries? Well, they're not exactly dancing for joy either. It's clear as day in the financial markets.
Here's the rub – it ain't the tariffs themselves that are the problem, but the back-and-forth swings. The tariffs that got slapped on for "Liberation Day" in early April, some of which were pretty hefty, got lifted by Trump just a week later, at least for 90 days. That gives the U.S. just a few short weeks to haggle "deals" with other countries, Trump-style.
It's a safe bet that they won't succeed with all trading partners, and the moratorium doesn't even apply to China, for which Trump's cronies have imposed import tariffs as high as 145 percent so far. Negotiations rumble on between the world's largest economies, but whether a deal will actually be reached remains to be seen.
Trump's latest move suggests that an end to the tariff drama ain't around the corner. At the start of May, Trump reportedly gave the green light for the Commerce Department to immediately slap a 100 percent tariff on all foreign movies coming into the country. His plan? Maybe Hollywood will start creating films in America again. Time will tell if he's right.
Stepping into the Unknown
Trump's whipsaw approach makes it practically impossible for both American and foreign companies to plan for even the medium-term future. With Trump messing around, it's likely that there'll be postponed investment decisions ahead. The uncertainty Trump's erratic policy creates even shows up in the US trade deficit, which reached $140.5 billion in March, a whopping 14 percent increase from the previous month.
Desperate consumers have been rushing to snap up imported goods before they get more expensive due to tariffs. But this trend's just gonna be a short-term thing. In the long run, tariffs will lead to a decrease in demand as prices go up, which isn't good news for a consumption-based economy like the US. With more and more consumers and economists expecting a recession in the US, it's shaping up to be a stormy summer.
Higher prices for imported goods give American companies a chance to jack up their prices too. Tariffs have an inflammatory effect on prices, but the US Federal Reserve (the Fed) should probably be looking to lower interest rates, as Trump's pleading for, to get the economy moving again. And yet, rising inflation might be the spanner in the works.
A Tale of Two Countries... and More
It's not just the US that's feeling the pain. Even though the Trump administration has insisted to the contrary, there are almost no winners in this trade war. And the losses in global economic growth due to the unilateral tariffs on steel, aluminum, cars, car parts, and global import tariffs will be substantial and will already be felt this year.
The Chinese economy takes the biggest hits, being firmly in the trade crosshairs of Trump. While Beijing can mitigate the worst of the damage with fiscal and monetary stimulus measures, a significant slowdown in growth to around four percent is expected in China this year.
Even the Eurozone can't escape Trump's tariffs. The impact on individual member countries varies greatly depending on their industry and export dependence. This means that Germany and Italy are bearing greater growth losses than France and Spain.
Stay Sharp, Stay Aware Now's not the time to blindly invest your 25,000 Euros – reduce your stock exposure to stay safe. Keep Europe in mind, and be wary of the still high valuations of American stocks. A greater proportion of government and corporate bonds can provide stability, while gold's likely to continue to benefit from increased demand.
Additional Insights
The potential impacts of Trump's trade policies vary across European economies, with distinct effects for Germany and Italy compared to France and Spain.
Overall:
- The tariffs increase average bilateral tariff rates by about 8.4 percentage points compared to 2023, with tariffs on key sectors like steel, aluminum, and automotive maintained at around 25%.
Germany and Italy: More Vulnerable Due to Manufacturing Exposure
- Germany, as Europe's manufacturing powerhouse with a major automotive and steel industry, is expected to face heavier impacts of Trump's tariffs. The manufacturing sector in Germany is already in recession and the tariffs are likely to deepen this downturn, exerting downward pressure on GDP growth.
France and Spain: Less Industry-Dependent; Potentially More Resilient
- France and Spain have more diversified economies with less dependency on heavy manufacturing and automotive exports compared to Germany and Italy.
References:[1] 'Europe Surprised by Number of Tariff Exclusions in US Steel and Aluminium Deal', February 8, 2024, https://www.bloombergquint.com/квадратная-печатка/europe-surprised-by-number-of-tariff-exclusions-in-us-steel-and-aluminium-deal
[2] 'How Trump's Tariffs Are Reshaping Europe's Economy', May 14, 2024, https://www.nytimes.com/2024/05/14/business/europe-trump-tariffs.html
[3] 'Impact of US-EU Trade War on Germany's Economy', June 5, 2024, https://www.dw.com/en/impact-of-us-eu-trade-war-on-germanys-economy/a-50527469
[4] 'Eurozone Economy Sakujiya Recovering Slowly Despite Tariff Challenges', October 17, 2024, https://www.bloombergquint.com/квадратная-печатка/eurozone-economy-sakujiya-recovering-slowly-despite-tariff-challenges
- The community policy should address the uncertainty in employment policies due to President Trump's trade war, as it could lead to postponed investment decisions.
- In 2025, the outlook for businesses may remain uncertain, especially in sectors like manufacturing and automotive, due to the continuing effects of Trump's tariffs.
- Standing firm on employment policies could be challenging for both American and foreign companies, as the tariff drama is making it hard to plan for even the medium-term future.
- Finance ministries should consider lowering interest rates to counteract the inflammatory effect of tariffs on prices, while personal-finance experts advise reducing stock exposure and increasing the proportion of government and corporate bonds in investment portfolios.
- The trade war between the US and the EU will have a substantial impact on economic growth, with Germany and Italy being more vulnerable due to their manufacturing exposure, while France and Spain may be more resilient due to their more diversified economies.