Trump Prepares to Step Up His Trade War

Yahoo

31-03-2025

From the The Morning Dispatch on The Dispatch
Happy Monday! After a busy weekend of games—including Auburn's memorable victory over Michigan State to advance to the Final Four—Chestbrockwell1967 and J. Fuqua are tied for first place in the TMD pool, followed by RedRaiderDad51, travbradburn, and romann233. We wish we had thought to pick the four No. 1 seeds to advance!
Our Dispawtch bracket has also entered its own Final Four. Who will take home the inaugural championship: Tesi, Meeko, Gus, or Molly? Cast your vote for today!
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In a December 2018 Twitter thread criticizing China for its unfair trade practices, President Donald Trump declared himself 'a Tariff Man.' But back then, the conventional wisdom was that this sort of tough talk was all bark and no bite. Trump implemented a series of tariffs during his first term, but the duties represented a significantly pared-back version of the trade war he had initially envisioned.
Now, as the president promises to enact sweeping tariffs on a range of U.S. trade partners this week, gone are any assurances that Trump's threats are mostly bluster. On Wednesday, President Donald Trump announced plans to impose 25 percent duties on foreign cars and car parts, effective April 3 at 12:01 a.m. ET. He has also vowed to correct trade imbalances through so-called reciprocal tariffs on goods from multiple countries, dubbing April 2 'Liberation Day,' when Americans will be freed from the yoke of purportedly abusive foreign trade practices.
Facing fewer political obstacles, armed with a more energized and ideologically aligned administration, and unconcerned with re-election (recent third-term talk notwithstanding), Trump's dream of revitalizing American manufacturing may be getting its first crash test (pun intended). And early indicators are not looking good, as American firms brace for the economic pain of Trump's levies and retaliatory measures from international trading partners.
The Dow Jones Industrial Average fell 1.7 percent on Friday, its largest percentage decrease since March 10. The S&P 500 fell almost 2 percent, while the Nasdaq composite slid 2.7 percent. But neither the battered stock market nor souring consumer sentiment appears likely to knock Trump off course. Asked by NBC News' Kristen Welker on Sunday whether he's concerned about foreign automakers jacking up their prices in response to the duties, the president responded: 'I couldn't care less if they raise prices, because people are going to start buying American-made cars.'
But foreign manufacturers aren't the only victims of the auto tariffs, which level a tax on imported car parts in addition to cars themselves. With very few exceptions, 'I don't really think that there's any car made in the United States that doesn't have at least some parts that come either from Mexico, Canada, Brazil, or South Korea,' Peter Simon, an economics professor at Northeastern University, told TMD.
Nor is there a clean distinction between which parts are 'American' and which are not. Linamar, a Canadian firm that makes transmission modules for cars sold in the U.S., is a case in point: Steel scraps are sent from Canada to Pennsylvania—and then Ohio—to be made into a 'hub,' which then travels to Ontario, where it's combined with a gear-shifting component made in Illinois. The product is then housed in an aluminum module made in Canada and later put into a transmission in a factory in the Midwest. It then crosses the border twice more, once to be inserted into a car in a Canadian dealership and then again to be sold in the United States.
The auto industry is full of such examples, with Audi and Mercedes-Benz plants in the Southeast deeply integrated with Mexican supply chains and the Detroit automotive industry enmeshed with Canada. '[Trump's tariff] is a measure that completely undermines the integration of the region's production chains, chains that have been formed over 30 years,' Rogelio Garza, the president of Mexico's auto-industry trade association, said Thursday.
American automakers, on the other hand, have approached the duties with cautious optimism. 'U.S. Automakers are committed to President Trump's vision of increasing automotive production and jobs in the U.S.,' said Matt Blunt, the former Missouri governor who now serves as president of the American Automakers Policy Council, a trade association that represents Ford, General Motors, and Stellantis. But 'it is critical that tariffs are implemented in a way that avoids raising prices for consumers and that preserves the competitiveness of the integrated North American automotive sector,' he cautioned.
For automakers, the unpredictability of Trump's tariffs is arguably as disruptive as the tariffs themselves. Earlier this month, for example, the president announced a last-minute temporary exemption for cars and parts that comply with the terms of the U.S.-Mexico-Canada (USCMA) trade agreement, a move applauded by American companies. The current executive order also leaves considerable wiggle room on that front, declaring that USMCA-compliant parts would remain exempt until the Secretary of Commerce creates a process for taxing their 'non-U.S. content.'
No one is sure how long that process will take, nor what 'non-U.S. content' precisely means. And in the business world, uncertainty breeds hesitancy, meaning companies are pulling back from making investments. A survey of chief financial officers conducted by Duke University and the Federal Reserve Bank of Richmond, released Wednesday, found that nearly a quarter of firms surveyed planned to cut back on hiring and investment in 2025 due to the administration's trade policy. 'Nobody is going to be willing to enter into a long-term agreement with another company or country, given the volatility of his daily decisions,' Simon said.
Trump has often left open the possibility that tariffs are simply a negotiating tool. 'Maybe I'll give them a little reduction in tariffs or something to get it done,' he said on Wednesday, in reference to his administration's attempts to convince China to sell ByteDance, TikTok's parent company. He also initially delayed some tariffs on Mexican and Canadian goods in February, citing border security concessions made by the countries.
Uncertainty abounds, though, as an even wider array of tariffs stands to be implemented on 'Liberation Day.' Trump has threatened 'sectoral tariffs' on products like computer chips, lumber, and copper, and also frequently promises 'reciprocal tariffs' on every foreign country that taxes U.S. exports. But what exactly those will look like remains deeply unclear.
The befuddled reportedly count many of Trump's allies among their ranks: 'No one knows what the f**k is going on,' a 'White House ally' told Politico last week. Trump has been coy about the exact contours of his policies, telling reporters last week that his tariffs could be 'somewhat conservative' and neglecting to inform the public on which of the already-imposed tariffs on Mexico and Canada (originally declared in February and eventually delayed until April 2) will actually go into effect. A White House official said last week that reciprocal tariffs were 'TBD.'
Many countries are already preparing for the worst. European Union diplomats, for example, are reportedly expecting a flat, double-digit tariff on all goods to be implemented on April 2—on top of already-existing tariffs on steel and oil. Others are at least trying to project confidence: 'We've been through this three times; this would be the third,' Mexican President Claudia Sheinbaum said Wednesday. And others are spitting mad: New Canadian Prime Minister Mark Carney declared Canada's old relationship with the U.S. 'over' on Friday, promising retaliatory tariffs that would hit the U.S. with 'maximum impact.'
The EU has already announced that, if Trump's trade war continues, the bloc will implement coordinated punitive tariffs targeting the American economy. Canada also has a plan to target industries in relatively Republican states, such as Harley-Davidson in Wisconsin or bourbon in Kentucky.
While you can never rule out a last-minute deal when it comes to Trump, the president and his allies appear fully committed to some kind of trade war, expecting significant gain to come of all the pain. On Saturday, Vice President J.D. Vance lashed out at a right-wing commentator who criticized Trump's trade policy on X, describing the conservative movement's embrace of free trade as 'brain-dead liberalism pretending to be conservatism.' The 'United States absorbs much of the producer surplus of the world,' Vance argued, producing a system that left the U.S. economy vulnerable to economic shocks.
Autoworkers' unions also cheered Trump's moves. 'We are heartened by the significant measures they have announced today,' the United Autoworkers said in a statement on Wednesday, 'and we urge the administration to take similar action to protect and reshore the heavy truck sector.'
But economists are more skeptical of the Trump administration's ability to deliver on its promises. 'Every president, the last 10 of them, promised to bring back manufacturing, and none of them were able to do it, with good reason,' Simon argued. The hypothetical benefits that would come from a mass reshoring of manufacturing are already being superseded by very real losses. As the auto industry prepares for more expensive input prices, it has scaled back expectations of production. Already, American steelmaker Cleveland-Cliffs has laid off 1,200 workers in Minnesota and Michigan. The company has voiced support for tariffs as a way to undercut foreign competition, but its share price dropped nearly 10 percent over the past week.
If the stock market's and economists' gloomy predictions are correct, consumers will soon be feeling the pain. Will anything, or anyone, make the president back off? His fellow Republicans seem disinclined to do so, even though Trump is issuing tariffs based on powers delegated to him by Congress, which it could revoke at will.
On Saturday, Trump said that the U.S.'s new tariff regime was here to stay. 'Absolutely, they're permanent,' he said. Maybe the uncertainty won't last so long, after all.
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Do you think Donald Trump's tariff regime is here to stay?