A Look Behind Trump’s Tariffs

American consumers will face higher prices, increased inflation, fewer available goods, and a drain of money from the global economy due to these unnecessary taxes.

By Anil Madan

Last Tuesday, July 22nd, the Chief Financial Officer of General Motors announced that its profit margin declined sharply due to incurred tariff costs of around $1.1 billion. For the full year, GM anticipates a $4-5 billion impact and is working to reduce the hit to earnings by changes in manufacturing, targeted cost initiatives (which sounds like asking suppliers to absorb some of the cost) and increased consumer prices. Stellantis, the manufacturer of Chrysler, Jeep, Dodge and Ram, cars and trucks reported tariff costs of $387 million in the last quarter and a production pause that reduced vehicle production by 6% to avoid tariffs. NPR reported that auto industry data suggests that manufacturers, reacting to consumer pushback, have been reticent about raising prices on new cars — the average price is nearly $49,000.

Trump’s Tariffs. Pic – AustAsia Group

On April 2nd this year, a day he called “Liberation Day”, Trump announced a universal tariff of 10% and higher reciprocal tariffs for many other countries. After the stock markets declined sharply, Trump backed off and postponed the effective dates of tariffs to allow other countries to “strike deals” with the US.

The tiny African country of Lesotho has a population of about 2 million. Its capital city, Maseru, has come to be known as the “Denim Capital of Africa.” It is a poor country, but for its people, the African Growth and Opportunity Act enacted during President George W. Bush’s administration, was a ray of sunshine. The law allows some African countries to sell into the US market tariff-free. Taiwanese companies set up factories in Maseru where workers produced jeans, t-shirts, sportswear and other apparel for large American brands like Levis, Wrangler and large retailers like Walmart.

Trump imposed a tariff of 50% on Lesotho because of the trade imbalance — it exported $237 million worth of garments while importing only $3 million worth of goods from the US.

But even though the tariffs were paused, orders dried up in Lesotho, factories closed, jobs were lost, and people are desperate and hungry.

Meanwhile, at home in the U.S., Trump’s pausing of the tariffs brought the markets roaring back and they have recovered trillions of dollars of market capitalization lost in the earlier swoon.

The effect of Trump’s tariffs has been felt by American companies, an African country, and the financial markets have been whipsawed.

So, what gives Trump the authority to impose tariffs, pause them, reimpose them, and then make deals with countries?

Trump’s actions challenged

Although the US Constitution delegates the power to levy taxes and tariffs to Congress, Trump has invoked the International Emergency Economic Powers Act (IEEPA) and also the National Emergencies Act (NEA) to impose universal tariffs while also imposing specific higher tariffs on some imports. As the names of the Acts intimate, the President is authorized to take actions in the face of a national or international economic emergency. Sure enough, on April 2nd, Trump declared that foreign trade and economic practices have created a national emergency. His Executive Order imposed responsive tariffs to strengthen the international economic position of the United States and protect American workers.

Trump’s actions under the IEEPA and NEA have been challenged in the United States Court of International Trade which unanimously ruled that the President had exceeded his authority by imposing the tariffs. An appeals court granted a temporary stay, allowing the tariffs to remain in effect while it considered the case. A decision on the appeal is expected in the next several months.

Going back to April 2, as noted, Trump imposed a universal tariff of 10% to take effect on April 5, and additional tariffs for 57 major trading countries were set for April 9. Canada and Mexico saw levies of 25% but given the United States-Mexico-Canada Agreement (USMCA) he later exempted goods compliant with that agreement. China saw higher baseline tariffs, but the two countries, after escalating rhetoric and tensions, agreed to a 90-day deal that set US tariffs at a reduced rate of 30% and China tariffs on US goods to 10%. So-called de minimis shipments from China — such as shipments by Amazon vendors of $800 or less in value — were set at 54%. Additionally, China agreed to resume shipments of rare earth elements that it had blocked in retaliation for Trump’s Liberation Day tariffs.

The overall pause for other countries that Trump announced was set to expire on July 8, but once again, Trump delayed and paused the deadline to August 1. As part of that process, the Trump administration sent letters to countries informing them of the new tariff rates applicable to their shipments to the US.

Aside from the deal with China, Trump announced a deal with the UK and with Vietnam.

Trump’s pauses in the face of American stock market weakness led some market watchers to say Trump Always Chickens Out (TACO) and others reported exploiting the TACO Trade to take advantage of stock market gyrations caused by Trump’s tariff announcements.

The pauses did not rescind steel and aluminum tariffs and a 25% tariff on imported automobiles. Other specific duties on some goods and sectors remained in place.

Some economists have estimated that the current US tariff rate now sits at an average of 27% which is the highest in over 100 years.

Trump has just announced deals with Japan and Indonesia. The Japanese deal lowers tariff rates but also calls for Japanese investment of $550 billion in the US with deployment to be approved or directed by Trump and 90% of profits to flow to the US. It is not clear what businesses will be created or whether they will generate any profit, or when or how much.

Meanwhile, he has announced higher tariffs on Mexico and Canada on goods not covered by the USMCA and announced that he will impose significantly higher tariffs on the European Union.

Game of chicken

Business leaders, especially CEOs of major retailers had warned that a trade war with China would lead to discernible price increases and consequent shortages. Sure enough, container ship traffic to US ports in April and May showed noticeable cuts in shipments, up to one-half in some cases. Economists have warned that these policies will lead to higher inflation which will restrict the Federal Reserve Bank’s Open Market Committee’s options in terms of lowering interest rates. And despite Trump’s claims that tariffs will raise hundreds of billions of dollars in revenue, economists are skeptical because Trump is all too willing to negotiate “deals” with significant reductions in tariffs, and with US goods also being subjected to tariffs in other countries. The net effect may be that both sides lose in this kind of game of chicken.

Why is Trump engaged in this tariff blitzkrieg? We know that he has long been enamored of tariffs, going back more than 30 years. He has railed against the unfairness of international trade by countries taking advantage of the US and its lucrative markets. He has also claimed that his tariffs will raise significant revenue for the US Treasury.

Perhaps the best explanation is that Trump sees himself as a dealmaker par excellence who can gain an advantage for the US. The experience with China shows that this is not necessarily a given. Sometimes, his personal feelings about a country lead him to make softer deals or to escalate threats. So, we have agreements with the UK and Vietnam that seem relatively benign. On the other hand, there is the random punishing effect on some trading partners such as Lesotho. The net result is that the people of Lesotho suffer, and American consumers will have to get their denim goods and t-shirts elsewhere.

The deal with Japan is a puzzle. It is not a given that Japanese consumers want to buy American gasoline-powered cars. As for EVs, Chinese products and Japan’s home-made cars are far better and more efficient.

Meanwhile Trump has not reached any deal with the EU. The Wall Street Journal reports that the European Union thought it was on the verge of a deal with the US to keep tariff rates in check. But Trump is apparently set to seek further concessions, and the EU is readying a counterattack. Apparently, the EU was working toward an agreement that would have kept baseline tariffs at 10% and this is supposedly a tough concession for a significant number of the EU’s 27 member countries. Apparently, Trump is seeking a baseline rate of 15%. Trump’s umbrage at the EU seems to be directed at what he sees as the refusal of Europeans to buy American cars while European vehicles enjoy a robust following in the US.

But, more importantly, Trump’s real motive here may be to temper EU regulation of America’s tech and social media giants and to keep the EU from siphoning off ever bigger chunks of their revenues by regulatory actions and fines.

The Wall Street Journal reported that a German official said: “All options are on the table.” While allowing that there is still time to negotiate a deal, he added, “If they want war, they will get war.”

The net result is that American consumers will pay more, see higher inflation, fewer goods, and more money will be sucked out of the world’s economy in the form of unnecessary taxes.

In this game of chicken wrongly thought of as a “war”, the time to chicken out seems to have been missed.

Cheerz…
Bwana

Mauritius Times ePaper Friday 25 July 2025