The ongoing trade war initiated by former President Donald Trump has taken a dramatic turn, alarming investors, CEOs, and economists alike. In recent developments, Trump threatened to impose a massive 200% tariff on European alcoholic beverages, including wine and champagne. This move comes as a retaliatory measure against the European Union's response to his initial tariffs. Christine McDaniel, a senior research fellow at George Mason University's Mercatus Center, emphasized that Trump's actions are a direct retaliation against the EU's countermeasures.
"The last few weeks have reminded us that trade is emotional. Countries can take things personally. And there are big personalities involved these days," – Christine McDaniel
The escalation has led to fears of a broader economic impact, with concerns that the tariffs might lead to inflation and harm global economic stability. The trade war has extended beyond traditional boundaries, with tariffs being applied to issues unrelated to trade, such as immigration and the dominance of the US dollar.
Tariffs and Their Global Impact
Trump's love for tariffs has drawn comparisons to the character in "My Big Fat Greek Wedding" who believes Windex can solve any problem. Mary Lovely highlighted this comparison, indicating that Trump's broad application of tariffs is akin to using a universal solution for diverse issues.
"This game has exploded into other areas," – Mary Lovely
The European Union has not taken the tariffs lightly, responding by targeting iconic American products such as jeans, boats, and whiskey. This tit-for-tat approach has escalated tensions and increased uncertainty in international markets. China also retaliated with tariffs and export controls following Trump's 10% tariff hike earlier this year.
The impact of these tariffs has been profound. A recent poll at a Yale event revealed that 94% of CEOs are worried about the inflationary effects of these tariffs, while 85% believe they are backfiring on the US economy. Jeffrey Sonnenfeld expressed the dismay and embarrassment among CEOs due to the broad assault on allies rather than adversarial nations.
"The broad-sweeping assault on allies instead of adversarial and rival nations has CEOs dismayed and embarrassed," – Jeffrey Sonnenfeld
Domestic and International Repercussions
Domestically, there are signs of potential backlash if the US economy starts to weaken or if Wall Street reacts negatively to the ongoing trade war. Trump briefly considered imposing 50% tariffs on all Canadian steel and aluminum imports, illustrating the unpredictable nature of this economic conflict. Ontario Premier Doug Ford even threatened to retaliate by pulling the plug on electricity sent to three US states.
Christine McDaniel pointed out the challenges economists face in this new trade environment.
“Human behavior is very difficult to model and predict. Trade economists had it pretty easy for 30 years. But we don’t have models for this new world,” – Christine McDaniel
The unpredictability of human behavior and the emotional aspect of trade negotiations make it difficult for economists to foresee outcomes. As Trump's trade policies diverge from traditional models, stakeholders are left grappling with uncertainty.
Future Prospects
While Trump has signaled that he does not intend to end the trade war soon, there remains a possibility that economic pressures might force him to reconsider. If the US economy shows signs of weakening or if Wall Street reacts with significant volatility, it could compel Trump to dial back his tariff initiatives.
Mary Lovely suggested that countries understand the detrimental effects of tariffs on their economies, which could serve as a natural deterrent in this ongoing conflict.
"They understand tariffs are bad for their economies. That could be a natural break in this tit-for-tat," – Mary Lovely
