No more TACO? What happens to Trump's tariffs after US attack on Iran? From ‘World Chickening Out' to ‘No One Chickens Out' - here's what may happen
Donald Trump's decisions on tariffs have become more crucial than ever. (AI image)
US strikes on Iran's nuclear facilities have had one important consequence - globally markets are aware that Donald Trump will not always 'chicken out'! US President Donald Trump's military strike on Iranian nuclear installations, alongside Israel's ongoing conflict with Iran, has introduced additional geopolitical uncertainties into an already unstable global economic landscape.
In this backdrop, Trump's decisions on tariffs have become more crucial than ever. Prior to the weekend attacks, financial markets and America's trading partner were possibly operating under the principle that "Trump Always Chickens Out, or TACO". This notion suggested that each severe threat, including that of high reciprocal tariffs, would ultimately be watered down
Trump's implementation of tariffs risks elevating prices and hampering economic growth.
However, the prevalent belief suggested these effects would manifest as mild economic discomfort rather than severe financial distress.
The widespread acceptance of "TACO" has encouraged market optimism, despite economists' warnings about the impending effects of Trump's tariffs on domestic and international economies.
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Nightmare scenario: How Iran, hit by US & Israel strikes, may choke world's oil supply via Strait of Hormuz - explained
This belief has also strengthened the resolve of nations in negotiations with the president, who has openly expressed his eagerness for agreements and established a July 9 deadline through a 90-day postponement of his most severe tariff measures. Some countries have questioned the necessity of yielding to Trump's demands when retreat appears inevitable. But, that may change now!
Operation Midnight Thunder
The US president's decision to strike Iran, contrary to advice from his closest allies, demonstrates his unpredictable leadership style.
His willingness to take action where previous administrations hesitated shows a departure from conventional diplomatic approaches.
According to a Bloomberg report, the global economic impact of "Operation Midnight Thunder" hinges on Iran's response. Should tensions escalate, leading to Iran blocking the Strait of Hormuz and causing oil prices to rise, it would create additional strain on an already vulnerable global economy weakened by existing trade tariffs.
The situation might prompt international markets and policymakers to reassess their interpretation of Trump's warnings. This military action proves his readiness to follow through on serious threats when diplomatic negotiations fail to achieve his desired outcomes, the report said.
What will happen to Trump's tariffs
? 4 scenarios to consider
It's important to note that whilst economic conflicts typically cause less devastation than military ones, every conflict impacts the economy. This situation will likely follow the same pattern.
'The World Chickens Out': The first possibility involves other nations interpreting Trump's actions as a serious warning sign, whilst viewing the strikes as an isolated incident that temporarily halts the Middle East tensions. This prompts countries to offer substantial compromises to Washington, hastening to finalise trade agreements before Trump's Liberation Day tariffs deadline of July 9. This represents the White House's likely preferred outcome: "The World Chickens Out", according to Bloomberg.
'Trump Chickens Out Rationally': The subsequent scenario suggests that the weekend military action intensifies the ongoing conflict, triggering elevated oil prices, worldwide economic disruption and volatile financial markets throughout summer. Trump responds by postponing his tariff implementation. However, the economic consequences remain significant, whilst continued trade uncertainty creates additional challenges. This represents: "Trump Chickens Out Rationally".
'Trump Holds Hands With the World': The third possibility envisions an unexpected global unity, including the US, to counter economic repercussions. A unified approach to stabilise oil prices and financial markets, coupled with renewed international cooperation, results in minimal global economic disruption. This could be termed: "Trump Holds Hands With the World."
'No One Chickens Out': The fourth and most concerning scenario suggests Trump, encouraged by his initial actions, pursues an aggressive strategy. Iran responds by blocking Gulf oil shipments. Despite soaring oil prices and market downturns, Trump intensifies his tariff policies. As the Liberation Day duties suspension ends, American trade barriers reach levels unseen since the 1800s. Major economies implement countermeasures, leading to worldwide trade disruption. Both global and US economies enter recession. Trump maintains his stance as international tensions escalate, potentially leading towards widespread conflict. This scenario could be labelled: "No One Chickens Out."
Alternative outcomes or combinations of these scenarios might prove more realistic.
Also Read |
Iran-Israel war & US bombings: Should possible Strait of Hormuz closure worry India about its oil supply? Explained in 10 points
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