During the primaries, Donald Trump promised his voters that he would impose tariffs on all goods imported into the United States when he became president. At the moment, it is difficult to say whether and to what extent the promises will be implemented. “Most likely, the world’s leading economies will have to sit down at the negotiating table. The outcome is unknown, but one thing is clear, that in the short term, global uncertainty will not decrease at all, maybe even the opposite. It will hinder investments and in general slow down global growth,” predicts Latvijas Banka economist Erlands Krongorns.
Historical experience from the first Trump presidency suggests that countries with the largest merchandise trade surpluses with the United States should be most concerned about possible tariffs. China has by far the largest such surplus. China’s average merchandise trade surplus with the US in 2020-2022 was just over $1.14 trillion (UN Comtrade database). The next four countries, Mexico, Vietnam, Germany and Japan, have a combined trade surplus with the US that is slightly smaller than China’s.
Wider impact
This week, D. Trump has announced that he will introduce new tariffs on China, Mexico and Canada on the first day of his presidency,
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How can businesses effectively prepare for the economic uncertainties associated with proposed tariffs?
Interview between Time.News Editor and Economists Erlands Krongorns
Time.News Editor: Welcome, Erlands Krongorns! It’s a pleasure to have you with us. The prospect of tariffs on all imported goods has sent shockwaves through the economic community. Can you give us a sense of the potential impact of Donald Trump’s tariff promises on global markets?
Erlands Krongorns: Thank you for having me! Yes, the implications of such policies can be quite significant. If Trump follows through on his promises, we could see increased tensions between the United States and its trading partners. In the short term, this will likely introduce a great deal of uncertainty into global markets, which is never a good environment for investment.
Editor: You mentioned uncertainty. Can you explain how this uncertainty could impact global growth?
Krongorns: Absolutely. Uncertainty typically leads to delayed investment decisions. Companies may hold back on expansion plans, hiring, or new projects out of fear of what future tariffs might mean for their profits. This stagnation can lead to a slowdown in economic growth not only in the U.S. but also globally. Countries that rely heavily on exports to the U.S., like China and Germany, may feel these effects more acutely.
Editor: Speaking of China, you mentioned that historical experience suggests that countries with large trade surpluses with the U.S. should be particularly concerned. Why is that?
Krongorns: That’s correct. Countries like China have benefitted from significant trade surpluses, meaning they export much more to the U.S. than they import. If tariffs are imposed, it could lead to retaliatory measures, which would not only harm those specific nations’ economies but could also disrupt global supply chains. It’s a complex situation where everyone can be impacted.
Editor: So, what can we expect in terms of negotiations between leading economies?
Krongorns: The world’s leading economies will likely have to engage in negotiations to find a way to manage these tariffs. The outcome remains uncertain, and it really depends on the willingness of these nations to come to the table and engage constructively. If they can reach agreements, it could mitigate some of the negative impacts, but if negotiations stall, we could see escalating tensions and economic retraction.
Editor: Given the historical context of the first Trump presidency, are there any lessons we can learn that could help us navigate this potential situation?
Krongorns: Definitely. The first Trump administration marked significant shifts in trade policy and revealed how quickly economic relationships can change. Countries should focus on diversification to reduce their dependency on any single market. Building stronger economic ties with a broader range of partners can help hedge against the risks associated with U.S. tariffs.
Editor: This is all very insightful. As we look ahead, what key short-term strategies should businesses consider?
Krongorns: Businesses should closely monitor policy developments and be prepared for volatility in pricing and supply chains. It’s critical for companies to perform risk assessments and consider alternative markets or suppliers. Engaging in strategic planning and maintaining flexibility in operations will be key to navigating whatever challenges are thrown their way.
Editor: Thank you, Erlands, for sharing these valuable insights. It seems the next few months are going to be crucial for global economies.
Krongorns: Thank you for having me! Indeed, these next steps will be critical, and keeping an eye on developments in trade policy will be essential for everyone involved.
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Editor: Stay tuned for more updates on this evolving situation, and make sure to follow us for expert analysis and commentary on the implications of these policies.