Global economies jarred by Trump's tariff blows
Former President Trump has announced new tariff rates on around 70 economies, including Canada and the European Union (EU), starting August 1, 2021. The new tariff rates range from 10% to 41%, and threaten further tariff increases on the EU and other trading partners, causing significant political and economic tensions.
Politically, these tariffs reflect Trump's use of economic measures to pressure trading partners on issues beyond traditional trade. The White House cited Canada's failure to curb the flood of fentanyl and other illicit drugs as a reason for the new tariffs, although Canada is not a major source of illegal narcotics. This move has exacerbated diplomatic strain, prompting Canada and Mexico to accelerate efforts to meet U.S. demands to preserve the USMCA trade agreement. The EU has also responded by preparing countermeasures, increasing the risk of a trade war.
Economically, the tariffs disrupt supply chains and trade flows. The Canadian 35% tariff significantly raises costs on exports to the U.S., Canada's largest trading partner, potentially harming Canadian industries and increasing prices for U.S. consumers. The EU faces a complicated tariff regime that includes 50% on steel and aluminum, 25% on cars and parts, and additional proposed tariffs on products worth €95 billion. This threatens EU manufacturers and exporters with reduced competitiveness in the U.S. market, while the EU's planned countermeasures could in turn impact American exporters in sectors like aircraft, autos, and medical devices.
Financial markets have reflected these uncertainties, with dips in stock futures in both the EU and the U.S. at the announcements, signaling concerns over escalating trade tensions and potential disruptions to global trade stability.
The tariffs have raised fears of inflation and other economic fallout in the world's biggest economy. Among other tariff levels adjusted in Trump's latest order, Switzerland now faces a higher 39 percent duty, while Mexico's tariffs have been delayed for 90 days. China was notably excluded from Friday's tariff announcements, as they are in negotiations with the United States.
Trump's tariffs have a distinctly political flavor, with the president using them to pressure trading partners on issues beyond trade. For instance, the tariffs on Brazil are aimed at pressuring Brazil to drop the trial of Trump's far-right ally, former president Jair Bolsonaro.
In a bid to offset the economic impact of the tariffs, Trump mentioned the possibility of distributing a tariff "dividend" to Americans. The new tariff rates deepen political friction by using trade as leverage on non-trade issues, and create economic risks through higher costs, potential retaliation, and broader disruptions in North American and transatlantic trade relationships.
- The United States, under former President Trump, imposed new tariffs on Canada, initiating a series of economic and political tensions in August 2021.
- The European Union (EU) is also subject to these tariffs, with rates ranging from 10% to 41%, causing complications in EU-U.S. trade relations.
- Africa was not directly involved in the tariff announcements, but the international finance market responded with concerns over potential inflation and disruptions to global trade stability.
- Beyond trade, Trump's tariffs on Brazil are politically motivated, aiming to influence the trial of Brazil's former president, Jair Bolsonaro's far-right ally.
