American juche
The lawyers aren't coming to save you either
The Trump administration did more damage to global trade this week than the Houthis whom the US is bombing in the name of keeping global shipping open.
There was a 12% surge in US import volumes in January as American businesses sought to front-run the imposition of tariffs. While financial markets wanted to believe the tariffs were just threats, businesses were not taking any chances. The stockpiling will exacerbate the downturn in global trade as the existing and threatened tariffs take effect.
Trump’s announcement earlier in the week of 25% tariffs on automotive imports from April 2 built on the national security investigation under his previous administration. For the avoidance of doubt, Trump declared ‘This is permanent, 100 percent.’ The tariffs apply on top of any other tariffs, with some relief for USMCA-compliant imports. Over half of the vehicles sold in the US are imported and even those produced domestically contain as much as 60% imported parts. Shares in US car makers fell, which tells you everything you need to know about how much the policy will benefit the US auto industry.
The EU, Japan, and South Korea have already threatened retaliation. For its part, the EU is expecting a 20% ‘reciprocal’ tariff rate to be announced from April 2, which it will feed into its calculations for further retaliatory measures.
Earlier in the week, financial markets took some relief from the suggestion that the administration was considering a staged approach to the imposition of tariffs, but this was just confusion based on disagreements within the administration about which authorities to use to minimise the risk of legal challenges. The car tariffs were able to proceed based on the previous Trump administration’s s232 national security investigation. For the ‘reciprocal’ tariffs, Trump will have to rely on the International Emergency Economic Powers Act or s338 of the Tariff Act of 1930. Those authorities would provide cover for subsequent s301 investigations, which will take time and have to be done by the book to avoid legal challenges. Section 122 of the Trade Act of 1974 would enable the imposition of temporary tariffs capped at 15% for up to 150 days, but this option would be less appealing given that Trump is aiming for a permanent tariff wall.