US President Donald Trump wasted no time last week before lobbing tariff threats at just about every significant US trading partner, in a bracing display of executive power that was reminiscent of his first-term assault on global trade.
But Trump’s second trade war is shaping up to be much different from his first. The president’s ambitions for a reordering of world commerce are broader. The opposition - at home and abroad - is weaker. And the economic risks he seems prepared to run may be greater.
In the first days of his second term, Trump promised, or threatened, to impose tariffs on more than $2 trillion (R37trl) of foreign products, roughly two-thirds of everything Americans buy from abroad. He ordered his Cabinet deputies to complete a comprehensive analysis of US trade policy by April 1, including deals he negotiated during his first term with China, Canada and Mexico; global taxation; and currency values, all with an eye toward developing a “robust and reinvigorated” new approach.
On Sunday, the president announced tariffs of 25% on goods from Colombia - to take effect “immediately” - after the government in Bogotá refused to allow two US military aircraft carrying deported migrants to land. After one week, the rate will double to 50%, Trump said in a post on his social media site, Truth Social.
Whether Trump follows through on that threat by the required formal action remains to be seen. But he has mused about new import taxes in virtually every public appearance since his inauguration. And the studies he ordered hint at creative uses of presidential powers, including a potential doubling of the tax rate for some foreign individuals and companies.
“I think it’s significantly different right now. The threats are much more expansive. The sense of legal constraints seems much less,” said Ed Gresser, who led the Office of the US Trade Representative’s economic research unit during Trump’s first term. “It suggests he feels as president he has the right to create a whole new tariff system all by himself.”
Trump appears all but certain to act earlier in his second term than he did in his first, when he waited a full year before slapping tariffs on foreign-made washing machines and solar panels. He has threatened to impose tariffs on China, Canada and Mexico on February 1 while suggesting that Europe, Russia, Brazil, India and several other countries could also see their goods taxed.
But with his top trade-related officials still awaiting Senate confirmation, Trump will probably wait to act until the April 1 deadline for completion of the multipart trade review.
“Part of the president’s strategy is to create uncertainty,” said Myron Brilliant, a senior counsellor at DGA Group, a business advisory firm.
A more harmonious administration trade team makes an accelerated second-term schedule more likely. Trump’s first term saw bitter fights between pro- and anti-tariff factions, which delayed action.
This time, key advisers, including Scott Bessent, treasury secretary-designate, and Howard Lutnick, nominated to become commerce secretary, are on record supporting new taxes on imports, even if they differ on implementation details.
“One of the biggest differences is it appears they’re not fighting with each other. It seems like there’s a lot more consensus,” said Lori Wallach, a director of Rethink Trade, a non-profit. “There’s no one who’s really trying to blow up the whole concept.”
Trump’s second-term team also differs from the line-up he took into his first trade war. Robert E. Lighthizer, Trump’s chief trade negotiator in the first term, has no formal role in the current administration, though he continues to advise the president, according to two people familiar with the matter who spoke on the condition of anonymity to discuss private deliberations.
Trump has nominated Jamieson Greer, Lighthizer’s former chief of staff, to be his new trade representative. Greer, a well-regarded trade attorney a generation younger than Lighthizer, has called for broadening tariffs on Chinese goods to include products manufactured in other countries by Chinese companies.
Trump is now wielding tariffs to achieve a broader set of goals than during his first term, when he focused largely on reducing the trade deficit and countering what he described as unfair Chinese trade practices. He began his second-term offensive by focusing on non-economic goals, such as curbing the illegal flow of people and drugs across US borders.
One overriding objective is using tariffs to raise hundreds of billions of dollars each year to offset the government revenue loss from extending the 2017 tax cuts that expire at the end of this year.
It’s not that Trump himself has changed. He remains fixated on bilateral trade deficits with individual nations, which most economists regard as unimportant. He continues to talk of encouraging manufacturers to relocate to the United States. And some of his goals are contradictory: He wants to discourage imports by raising their price with tariffs. But he needs high levels of imports to raise significant revenue.
“He now needs the money. He didn’t need the money in the first term. It’s now essential to what he’s talking about,” said William Reinsch, a trade policy expert at the Center for Strategic and International Studies in Washington.
But in the wake of Trump’s popular-vote victory in November and the Democratic Party’s rudderless response, the environment he confronts is more favourable.
Opponents of Trump’s tariff plans occupy a weaker position now than they did after his first election. After the November election, corporate executives who once criticized him, or were criticized by him, rushed to the president’s Mar-a-Lago resort in South Florida to make up.
For two generations, most mainstream economists saw tariffs, which are taxes that Americans pay on imported goods, as economically inefficient. But the decades-long consensus in favour of global economic integration, which was battered during Trump’s first term, eroded further under the Biden administration.
Even some of the most global American CEOs are accommodating the turn toward economic nationalism. JPMorgan Chase CEO Jamie Dimon, who criticized Trump’s first-term tariffs, struck a different tone last week when asked about new import levies.
“If it’s a little inflationary, but it’s good for national security, so be it. I mean, get over it,” he said at the World Economic Forum in Davos, Switzerland.
Businesses that vigorously fought tariff proposals during Trump’s first term have largely accepted the fact that more are coming. Their hope now is less to persuade the president to abandon his plans than to be smart about implementing them.
“A lot more people view this as part of the new normal. This is where we are right now,” said Stephen Lamar, president of the American Apparel & Footwear Association. “The conversation is not about stopping these policies. It’s about shaping policies so they have the maximum bang for the buck.”
Some of the president’s chief foreign targets - such as China and the European Union - are in no shape to fight an all-out trade war.
The euro area is expected to grow at an annual rate of just 1 percent this year, according to the International Monetary Fund.
China’s growth outlook is better but more precarious. Amid the hangover from a property bubble, the Chinese economy is in danger of falling into a debt trap, where weak demand causes prices to fall, making it harder for businesses and consumers to repay their debts, the IMF said this month.
Chinese manufacturers are producing more goods than they can sell at home. Exporters are slashing prices to boost sales to Americans and Europeans of everything from toys to clean energy products. China’s growing dependence on exports leaves it vulnerable to the additional tariffs of 10 percent to 60 percent that Trump has proposed.
Not all of the post-2018 changes favor Trump. The global economy, for example, is more susceptible to inflation than it was when Trump first sought to reshape trade flows, making the imposition of significant trade restrictions a bigger risk, according to the IMF.
In 2018, it had been decades since consumers feared inflation. Businesses were typically unable to raise prices.
Now, after suffering the highest inflation in 40 years, consumers are more accustomed to seeing prices tick up. When companies’ costs increase, they are better able to pass along higher prices to their customers.
Compared with 2018, the global landscape today reflects greater concern over fragile supply chains, geopolitical tensions, and structural factors like aging populations and high levels of public debt - all of which could contribute to higher inflation, according to Gregory Daco, the chief economist at EY-Parthenon.
“It puts us in a very different environment than we were in, in 2018,” Daco said. “The fundamental underpinnings of the global economy have changed.”
THE WASHINGTON POST