When you look at the state of global trade, it’s impossible to ignore the influence of Trump's policies. His administration's assertion to put 'America first' has led to a series of tariff impositions that are shaking up economies around the world ...
Ultimately, the complete outcome of Trump's tariff wars hinges on multiple unknowns!
While the idea of protecting domestic jobs and industries sounds beneficial in theory, the practical implications of these tariffs will expose unforeseen costs that affect all of us, especially in such a globalised economy.
As you may already be aware, Trump recently escalated his trade war by imposing a hefty 25% tariff on goods imported from Canada and Mexico, while also doubling the tariffs on Chinese imports from 10% to an eye-watering 20%! These were set on the 4th of March, and are obviously subject to Trump's whims!
This move aims to bolster US jobs while claiming to reverse growing trade deficits, but the reality is far more convoluted than that. The immediate impact has already sent markets into a tailspin and raised concerns about the overall health of the US economy.
One of the most worrying outcomes of these tariffs is the potential for increased inflation in the US. As input costs rise, you might find it becoming more expensive to buy everyday goods - eggs being the perfect example. Current forecasts predict a 25% tariff on imports from Canada and Mexico could push personal consumption expenditures (PCE) inflation from 2.6% to over 3% this year. This implies that basic needs, from food to electronics, could soon be significantly pricier for average Americans – and potentially for those of us in the UK who import US goods as well.
While Trump's approach could initially stimulate some domestic production, I believe it will simultaneously lead to higher costs and stifle consumer spending. As you consider your own budget, the impact of rising costs may lead to cutbacks not just in spending, but also in confidence about future economic resilience. Ultimately, this could translate to reduced GDP growth in the US by as much as one percentage point.
This would have ripple effects across the globe, including right here in the UK. Despite our relatively smaller trade deficit with the US, we are already preparing for the potential fallout from Trump's protections. There are now 25% tariffs on all steel and aluminium imports and some of our struggling industries are beginning to worry. We are not currently going to retaliate and I believe that's because we're still hopeful about negotiating a free trade agreement with the US.
As for the EU, well they used to impose a 10% tariff on US car imports while American tariffs rested at a mere 2.5%. Now, Trump has imposed 25% across the board for EU imports and the EU is retaliating with its own €26 billion in tariffs starting in April 2025.
"This overly aggressive US trade policy will directly hurt US businesses!"
The EU could go a step further and implement a larger digital services tax, hitting key sectors of the US economy right where it hurts. Such retaliatory measures underline the reality that in a trade war, it's typically the country with the surplus - in this case the EU - that has more to lose. The interconnected nature of global trade means that we cannot view these issues in isolation; the repercussions of Trump's tariffs have the potential to touch every corner of the globe.
So, how can you cushion the blow? Both businesses and consumers can seek alternative suppliers as they adapt to the new trade environment. This is happening in Canada right now and US products are being boycotted en mass and are even being removed from shelves.
While this could initially seem like a feasible strategy, the reality is costlier options may arise as businesses scramble to find new avenues to minimise expenses. Remember, if production moves overseas to dodge tariffs, the advantages touted by Trump may quickly slip through the fingers of Americans.
"Ultimately, the complete outcome of Trump's tariff war hinges on multiple unknowns!"
How long the tariffs will remain in place? What is the scale of the duties imposed? And what will be the retaliatory responses from other nations? As these tariffs sow uncertainty and instability, it's vital to observe how all parties navigate this turbulent landscape.
While Trump may consider this approach a step toward benefiting American workers, I don't understand why he can't see the potential costs involved - including rising prices, stunted economic growth, and international tensions. These important factors cannot be overlooked.
Remember, the interconnectedness of our global economy makes it evident that we are all in this together.
Until next time ...
ROGER EDDOWES Business Godparent
Would you like to know more?
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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