At the moment, it’s a war of words with a side order of sabre-rattling. But as tensions between the US and its overseas rivals rise, the President’s crusade to make what he sees as a long-overdue ‘correction’ to the country’s trade deficit is beginning to have unintended consequences in America’s – and his own – heartland.
Since he took office, President Trump has been committed to the idea of righting the wrongs he believes have been perpetrated by trading partners looking to make gains at the expense of US interests. After dabbling with tariffs on solar panels and washing machines, a new set of curbs on steel and aluminum imports was introduced in spring of this year, swiftly followed by import duties designed to target billions of dollars’ worth of Chinese imports.
But, while China may have borne the brunt of the action, America’s traditional allies certainly haven’t escaped scot-free. Initially exempting Canada, Mexico and the EU from the steel and aluminium tariffs, Washington later confirmed that it would impose the duties across the board – special relationships notwithstanding.
While many presidential promises evaporate on entering the Oval Office, Trump has certainly proved to be a man of his word when it comes to honouring his campaign trail commitment to pursuing a more protectionist trade policy.
Within just a few days of acceding to the presidency, Trump drove a truck through the emerging Trans-Pacific Partnership (TTP) and agreed to take a fresh look at the North America Trade Agreement (NAFTA) to try to squeeze a better result for the United States. Next, hot on the heels of his announcement of the imposition of tariffs on solar panels and washing machines, a new set of curbs on steel and aluminum imports was introduced. Most recently, Trump has announced the introduction of a wider swathe of tariffs that will slap a 25% tax on an as-yet-unspecified $60 billion-worth of Chinese imports.
Another bite of the Apple
Could times be a-changing for tech giant Apple? After coming under fire for its tax evasion policies, it seems as if the company could be softening its stance towards corporate tax obligations, as CEO Tim Cook announced in January that Apple would be making a payment of $38 billion to repatriate part of its overseas cash holdings. Cook also committed to spending $30 billion in the US over a five-year period, creating 20,000 jobs and a new campus in the process.
Is the presidential honeymoon over?
It was one of Donald Trump’s most prominent pre-election pledges, so when the much-vaunted repeal of Obamacare failed to secure the support it needed in Congress, Wall Street signalled its disapproval via a massive share dump, bringing the stock market’s seemingly unstoppable rise to a screeching halt.
If the stellar performance of the S&P over the past few months demonstrated a level of confidence in the ability of the new president to deliver on his promises, this abrupt volte-face is a reflection of a more sombre mood. Tumbling US shares prefaced similar dips in Tokyo, Frankfurt, Paris and London as global markets wobbled over the prospect of the Trump administration’s ability to deliver on a raft of growth-boosting measures.
The winds of change
On the face of it, the ideological and political differences between the outgoing Obama administration and the incoming Trump regime could not be greater. Barely a single policy is likely to remain unaffected, with everything from public spending to international relations predicted to shift into sharp reverse under the auspices of a maverick who’s made his mark by defying convention throughout the presidential campaign.
In the last months of 2016, the financial markets reacted to Trump’s unexpected victory via a textbook surge in stocks and government yields as well as a significant upshift in the value of the dollar following predictions of increased growth and higher levels of inflation on the wave of announcements regarding deregulation, tax reforms and infrastructure spending.
An upturn for the economy?
After a period of sluggish performance, the US economy may be set for an unexpected upturn. The incoming Republican administration seems determined to throw all its resources into boosting the economy which, together with the much-touted trade restrictions shoring up the price of imports, is almost certain to fuel inflation above the average 2.2% of Obama’s second term.
While under Barack Obama, labour regulation and environmental legislation expanded greatly – witness the scope of Obamacare, for instance – its subsequent contraction under Trump may well encourage businesses to start investing again.