Trump is winning his trade war … but Americans will pay the price

Independent

2 days ago

President Donald Trump nabbed a major win over the weekend when he announced a trade agreement with the European Union that would slash the rate of tariffs down to 15 percent.
While not the fabled ' 90 deals in 90 days ' that his trade adviser Peter Navarro had pledged when Trump initially paused his 'reciprocal tariffs,' it was still a fairly big deal given that the European Union is the biggest trading partner of the United States.
And last week, Trump announced the ' largest TRADE DEAL in history ' with Japan. And a few months ago, he announced a multibillion-dollar deal with the United Kingdom. All of these countries or blocs are massive trading partners.
But it didn't lead to the euphoria on Wall Street that Trump likely wanted. As of the stock market's closing bell on Monday afternoon, the S&P 500 barely budged and the Dow Jones Industrial Average dipped slightly.
It might be because Americans will continue to pay more for products than they did before the deal. But one economist had another thought about the 'biggest deal ever,' as Trump alternately put it, landing with a thud.
'I also think that the markets have taken TACO a bit too seriously,' Tara Hoops, director of economic analysis at the Chamber of Progress, told The Independent.
Referencing the acronym for 'Trump Always Chickens Out' — where he has gained a reputation for talking a big game regarding imposing tariffs, or in demanding ceasefires in Ukraine and Gaza, and then backing down hours or days later — Hoops said, Wall Street is in a mode 'where no one is actually believing the frameworks that are coming out.'
For all of Trump's talk about how the reciprocal tariffs might lead to a renaissance of American manufacturing, Hoops flagged a fatal flaw: American auto manufacturers will pay 50 percent tariffs on steel and an additional 25 percent on other automobile parts.
'Meanwhile, the same people could just go to the EU and pass on to the consumer,' Hoops said. ' So the only person who is winning here might be Trump, because it seems to him that he has a deal, but the consumers are the ones who have to pay more for these goods.'
Trump has said that the United Kingdom will know ' pretty soon ' if it will face 50-percent tariffs, but that will likely be cold comfort. And the 50-percent tariffs on European aluminum and steel will remain.
Stan Veuger, a senior fellow at the conservative American Enterprise Institute, said that the European Commission started with far too much optimism about the contours of a trade deal with the United States, where they hoped there would be zero tariffs on either sides.
'I think that was really a complete misread of what the Trump administration was going to do on trade,' he told The Independent. 'It might not have been driven by naiveté but rather fear about whether the United States would uphold commitments in Ukraine and NATO.
'I think the combination of those two — just really a misread of Trump's attitudes on trade combined with those concerns about security relationships — made them not retaliate, not respond aggressively, make them not try to build an alliance with Canada and South Korea, other major American trading partners,' he added.
Veuger noted that in recent months, even as Trump has paused his tariffs, the value of the dollar has gone down.
'But it's certainly not comprehensive, and also really doesn't resolve all of the trade issues that exist between the US and the EU, for example,' he said.
Another unintended consequence may be that Americans might have to replace products they purchase from other countries with lower-quality products made in the United States. And Trump's rupture on tariffs means that other countries will not necessarily trust the word of an American president — because they can simply retract it the way Trump has.
So far, Commerce Secretary Howard Lutnick has said that this Friday is the drop-dead date for tariffs. But this week will also show some critical tests for whether Trump puts the foot on the gas for tariffs.
On Wednesday, the quarterly GDP report will drop, which will show how much the U.S. economy grew. It will be a helpful barometer because it will simultaneously show how markets reacted to the 'Liberation Day' announcements as well as the pause.
That same day, the Federal Reserve will meet and make its announcement on interest rates. Trump has not been happy with Fed Chairman Jerome Powell's decision not to cut rates and he likely will keep them the same this go around as the market absorbs the rates.
Lastly, on Friday, the Bureau of Labor Statistics will release its jobs report, which will again be another measurement of the health of the economy since Trump's announcement.
If any of these indicators are weak, cause the stock market to nosedive or the cost of U.S. bonds to spike again, it might be time to fire up some tortillas and get ready for a fresh batch of TACO.