As Trump Lobs Tariff Threats, White House Maps Trade Overhaul
(Bloomberg) -- In Donald Trump’s first 36 hours back in the White House, he threatened to slap tariffs on the US’s top four trading partners starting as soon as next week.
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But after a campaign in which he promised far bigger and broader levies, the fact that he didn’t actually impose any was enough to allay some critics’ worst fears about his plans, with many reading the latest threats as just negotiating ploys. At least for now.
Buried in the dense language of Trump’s executive order on trade were potentially sweeping changes in how the US does trillions of dollars of business with the world. He ordered studies on how to overhaul many of the rules that have governed US trade policy for decades.
“They’re essentially setting the stage for future tariff actions,” said Scott Lincicome, vice president at the Cato Institute. “All this kind of sigh of relief,” he added, “strikes me as a bit premature.”
For his part, Trump hasn’t tempered his public enthusiasm for imposing sweeping tariffs to raise revenue, reshape trade flows and as leverage for other foreign policy goals.
His threats so far against Mexico, Canada, China and the European Union fall into that last category. With the North American neighbors, Trump has said he’s looking for more cooperation to stem the flow of migrants and drugs across the border. From Beijing, he also wants more steps to cut fentanyl traffic, as well as a deal on TikTok, which is facing a ban on operations in the US. He wants European allies to spend more on defense and go easier with taxes and regulations on US companies.
According to Lincicome, the combination of Trump’s daily public threats with the methodical work kicked off by the executive order is “the way that they can get to where Trump wants on using tariffs, but do so in a more systematic way.”
That gives “Trump kind of a loaded weapon to run around the world for the next few months and say, ‘If you don’t do what I want on fentanyl or whatever, I’m going to launch a bunch of tariffs,’” he said.
Trump invoked his tax-and-tariff playbook against Russia Wednesday to pressure it to end the war in Ukraine even though Moscow is already under heavy sanctions blocking most trade with the US.
The executive order signed Monday also opened the way to using tariffs for the other purposes his team has outlined. Trump ordered an investigation into “unfair and unbalanced trade,” as well as the economic and national security implications and currency manipulation by trade partners. Even tax rules were thrown in as possible trade tools. Reports on those topics from cabinet departments are due by April 1.
“You could call it the blueprint and the foundation for the tariffs and trade policies that may or may not emerge over the next 100 days,” White House Trade Counselor Peter Navarro told Fox Business on Tuesday. “You’ve got discussions about the universal baseline tariff. You’ve got discussions about the USMCA, which needs to be reviewed in 2026,” he said, referring to the trade deal with Canada and Mexico.
And action may come before the reports are due. “I don’t see this memorandum certainly as precluding taking action before the reporting deadlines.,” said Greta Peisch, a partner at law firm Wiley Rein. “I think that that’s still a possibility.”
Administration officials have big hopes for using tariffs to raise revenue as they go into what are likely to be tough negotiations with legislators on extending Trump’s first-term tax cuts and delivering on other costly campaign promises.
“There is therefore a fiscal incentive to announce tariffs ahead of new tax legislation,” Deutsche Bank AG analysts wrote on Wednesday.
But after promising to create an External Revenue Service to collect all the tariff revenue he plans to raise, Trump in his executive order merely ordered a feasibility study on the issue.
At the same time, the lack of immediate action on China, which had been a prime target of Trump’s threats during the campaign, has reassured some.
On Tuesday, Goldman Sachs Group Inc. economists called his tone on China “notably less hawkish” and dialed back its estimated probability for a major hike in levies, though they still kept it a base case. Higher global tariffs, they said, are “a lower priority than we would have expected.”
Trump began his first term by threatening to withdraw from the USMCA’s predecessor, the North American Free Trade Agreement, before putting tariffs on steel from the EU and placing duties on hundreds of billions of dollars in imports from China.
“The trajectory for tariff hikes and talks is likely to be bumpy, as we experienced in trade-dispute 1.0,” Citigroup Inc.’s Xiangrong Yu said in a note to clients this week.
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