Trump’s tariffs and their consequences

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Trump’s tariffs and its consequences

US President Donald Trump has signed three executive orders placing a 25 per cent tariff on Canada and Mexico, and a 10 per cent tariff on China.

Throughout his campaign, President Trump was staunch in imposing tariffs on countries he claimed left the US vulnerable to immigrants and illicit drugs. Trump also saw the tariffs as a means of leverage, encouraging manufacturers and importers to produce goods domestically to avoid tariffs.

“All you have to do is build your plant in the United States, and you don’t have any tariffs,” President Trump had commented.

In the short term, a surge in ocean shipping demand is expected as US importers rush to frontload inventory ahead of upcoming tariff deadlines. However, given the already elevated rate levels, percentage increases may not be as sharp as those seen in 2018.

Despite the White House’s warning of increased tariffs should the concerned countries retaliate, imminent trade wars loom over the Americas with Canada and Mexico striking back.

Canada’s Prime Minister, Justin Trudeau, announced that Canada would impose 25 per cent tariffs on CA $155 billion ($105.7 billion) of US goods. Meanwhile, Mexico’s President, Claudia Sheinbaum, stated in an X post that she had instructed her economic minister to implement tariff measures to uphold Mexico’s interest while vehemently opposing Trump’s drug-related allegations.

Trade wars usually reduce the demand for ocean container shipping, driving down rates – a potential silver lining for shippers in the future. 

According to The Guardian, the US imported a total of $1.2 trillion worth of goods from Canada, Mexico, and China combined in 2023. While theoretically, this aligns with the US economic interests, the practicalities of domestically produced goods that have been historically relied upon from overseas, remain precarious.

A more probable consequence is a rise in consumer prices imposed by importers to offset their additional tariff costs, reported the British newspaper.

READ: Trump appoints new FMC Chairman

Professor Kimberly Clausing, a nonresident senior fellow at the Peterson Institute for International Economics (PIIE), told ICS Leadership Insights that President Trump’s tariff plan if enacted, will be counterproductive to his stated intentions. Instead of reducing the trade deficit and increasing production “they will instead raise consumer prices, and introduce new shocks to the economy”, she said.

Clausing, who also served as Deputy Assistant Secretary for Tax Analysis in the US Department of the Treasury under the Biden Administration, claimed the policy, along with other proposed tax cuts, would amount to “regressive tax cuts, only partially paid for by regressive tax increases”. 

Professor Clausing also noted the tariffs would reduce after-tax incomes by “3.5 per cent for those in the bottom half of the income distribution” and cost a typical household in the middle of the income distribution about $1,700 in increased taxes each year.

Recently, Federal Maritime Commission Chairman Louis E. Sola and Commissioner Daniel B. Maffei addressed the U.S. Senate Committee on Commerce, Science, and Transportation, discussing the operation, control, and costs associated with using the Panama Canal.

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