Escalation of trade conflicts: Rapid unraveling of commercial collaborations
Trade wars are no longer limited to import taxes, but have escalated into a broad, tit-for-tat battle. President Donald Trump's 25% tariffs on Canadian goods have incited response from Ontario, leading them to pull American liquor from shelves and even threaten to impose a surcharge on electricity exports. This has escalated tensions, with Trump considering increasing tariffs on all Canadian steel and aluminum imports, before cooler heads prevailed.
It isn't just the US-Canada trade fight that's heating up. China responded to Trump's tariff hike in February with retaliatory tariffs, export controls, and adding Calvin Klein's owner, PVH Group, to a government blacklist. The European Union retaliated against Trump's steel and aluminum tariffs by imposing taxes on American jeans, boats, and whiskey. When asked about the EU tariffs, Trump vowed to retaliate.
The broadening of the trade war was predictable, as Trump has been applying tariffs to areas unrelated to trade such as immigration, fentanyl, and the dominance of the US dollar. Trump has even floated the idea of using tariffs to pressure Russia into a peace deal. Trade economists see the president's love of tariffs as a wildcard, as any restraint regarding commercial policy has been abandoned.
Trump has signaled he's not ending the trade war anytime soon, threatening a wide range of additional tariffs, including reciprocal tariffs scheduled for April 2. These looming tariffs could trigger further retaliation. Political leaders like Doug Ford in Canada and Claudia Sheinbaum in Mexico are taking different approaches in dealing with the trade war, while investors and business leaders are facing increasing uncertainty.
The Business Roundtable has reported a dimming CEO Economic Outlook Index and a decrease in hiring and investing plans. A majority of CEOs oppose Trump's trade approach, with 94% of CEOs polled concerned about tariffs being inflationary and 85% believing Trump's tariffs are backfiring. Business leaders are angry over shifting justifications offered by the administration for Trump's tariffs.
The future evolution of the trade war is uncertain, with foreign leaders being cautious not to further damage their economies. Trump may be forced to dial back the tariff pressure if the US economy starts to weaken or if Wall Street throws an even bigger temper tantrum. The President is in a tight spot, and every tariff (or threatened tariff) makes his position more difficult.
Sonnenfeld, a business leader, expressed dismay at the ongoing trade war, stating that the tariffs have caused a decrease in the Business Roundtable's CEO Economic Outlook Index and a decrease in hiring and investing plans. The tariffs have also made president Trump's position more difficult, potentially forcing him to dial back the tariff pressure if the US economy starts to weaken or if Wall Street throws an even bigger temper tantrum. Even as foreign leaders cautiously approach the trade war to avoid damaging their economies, the future evolution of the trade war remains uncertain, with the looming threat of additional tariffs continuing to create a sense of unease in the economy and business sectors.
