Trumponomics' biggest losers - Europe, China and Mexico will be hit hardest by Trump's tariffs
(The Economist)
In government cabinets, in boardroom discussions or in diplomatic missions, it has been a topic of discussion that has prevailed over the others. The overwhelming victory of Donald Trump and the Republican Party in the US elections will give great powers to an impulsive president with unorthodox economic beliefs and a combative approach to negotiations. Bigwigs in government and business everywhere are scrambling to analyze the consequences, for America and the rest of the world.
America, the world's largest economy, issues the global reserve currency and is home to the planet's largest banks and firms. Its scale, depth and entanglement with the global economy means that even small policy changes can resonate far beyond its shores. Trump has promised to overhaul key pillars of the US economy, from trade and regulation to immigration. His policies aim to reshape the flows of goods, capital and labor that irrigate the world economy. This will create some winners and many losers, across the globe.
Let's start with the flow of goods. Trump is deeply suspicious of trade. "The most beautiful word in the dictionary is tariff," he told a business audience in October. Trump has advocated a universal protectionist wall, with 10-20% tariffs on all imported goods, in addition to much higher tariffs targeting a minority.
However, the proposals may not be fully implemented. "On day one they're going to come up with something that's going to get everyone's attention, but they're not going to apply universal tariffs right away, because that would destroy the stock markets," said Sarah Bianchi, a former trade representative. of the United States.
Trump, in part, can use tariff threats to extract concessions from friends and foes. However, implementing even a fraction of what he has proposed would mark America's largest tariff increase since the 1930s.
Who can the new American administration hit harder? Trump and his advisers are obsessed with bilateral balances. Any country that records a large trade surplus with America, they think, is cheating America. And the list of countries that have a trade surplus with the US is long. The president-elect has hinted that he will impose a 60% tariff on all Chinese goods, five times the current average level. Analysts think China's exports to America could be cut in half as a result of the decision, knocking 1 percentage point off China's GDP amid already tepid growth. The impact would be limited by the fact that Trump's original tariffs, which were also kept in place by Joe Biden, have already caused China's exports to America to shrink.
Trump has also threatened tariffs of 25% on most Mexican goods, while cars will be subject to even higher taxes. That would hurt Mexico badly. The value of the country's merchandise exports to America is equal to 27% of GDP, compared to less than 3% for China. Mexico also has fewer alternatives. More than four-fifths of its exports go to its northern neighbor.
The European Union also has reason to worry. The bloc has a merchandise trade surplus of about $200 billion with America. Bank Goldman Sachs predicts the new tariffs could shave 0.5% of Europe's GDP, with Germany, the bloc's biggest economy, set to take the hardest hit. Many other places can be found in the front line of fire. Vietnam's trade surplus with America reached $100 billion last year. Canada, India, Japan, South Korea, Switzerland, Taiwan and Thailand also have surpluses in the tens of billions of dollars.
If a tsunami of tariffs were to materialize, few countries would prosper. But some can gain relative advantages. Allies without significant trade surpluses with America may be able to secure exemptions, and such a deal is said to be under consideration for Britain. Other countries can benefit simply by not being China. Some multinational firms will accelerate relocation efforts. Steve Madden, an American fashion firm, announced that it would move its Chinese production lines to other countries. Black & Decker, a tool maker, has said it will do the same if Trump goes ahead with the plan to impose tariffs. Firms leaving China may be tempted to relocate to Mexico and Southeast Asia, despite these countries being potential targets for higher tariffs.
The global redistribution of capital, the second great shift, is already happening, even though Mr. Trump will be inaugurated in about two months. Investors expect his proposed combination of tax cuts and deregulation to boost domestic corporate profits. The S&P 500, which is the index of large US firms, hit all-time highs from November 6 to 11, while shares in the rest of the world fell about 2%. "We are already in a mix of strong performance of the US economy, weakness in the rest of the world and the possibility of some policies that will further support the United States and financial markets," says Eswar Prasad of Cornell University. "It is increasingly difficult for fund managers to diversify away from the US market," he adds.
Deregulation can also give US firms a cost advantage over foreign ones. Trump has promised to ease environmental regulations while lowering energy costs, a concern for European firms, which are already suffering from higher electricity prices. "If the US abandons the climate rules and we continue our course, we will lose out completely in production," says Luis Garicano, a former member of the European Parliament who is now a professor at the London School of Economics.
Investors have also been lured by the US currency. The dollar is up 3% against a basket of six currencies since November 5. The clean victory of the Republicans, including the majority in both houses of Congress, is set to further support the dollar. Fiscal easing was possible regardless of who won the election, but the absence of political gridlock will allow deficits to widen even further. Coupled with the inflationary pressures of higher rates and tighter labor markets, this could force the Federal Reserve to keep interest rates higher for longer, keeping the dollar strong.
This is bad news even for the poorest countries. A stronger dollar increases the value of their imports, many of which are valued in the greenback. Those who borrowed in dollars will see the value of their debts increase. IMF research published last year suggests that every 10% increase in the value of the dollar reduces economic output in emerging markets by about 1.9% after six months, and that these effects persist for two and a half years. Higher interest rates in America make the rest of the world less attractive. Capital is flowing out of emerging markets, forcing their central banks to raise rates to support currencies already weakened by worsening trade balances. This reduces lending and investment just when these economies need support.
Politikat e zotit Trump pritet gjithashtu të riformësojnë flukset e emigracionit, shqetësimi i tretë i madh. Ai ka premtuar vazhdimisht se do të dëbojë miliona emigrantë të paligjshëm. Meksika, përsëri, do të vuante më shumë se çdo ekonomi tjetër e madhe. Riintegrimi i një mase të madhe punëtorësh në tregun e saj të punës mund të marrë vite, duke shkaktuar rritje të papunësisë. Dëbimet masive do të dëmtonin gjithashtu remitancat nga Amerika në Meksikë, që llogariten në rreth 60 miliardë dollarë vitin e kaluar, duke tejkaluar shumën e investimeve të huaja direkte që mori Meksika.
Deportimet gjithashtu mund të gjymtojnë ekonomitë në të gjithë Amerikën qendrore dhe Karaibe. Në vitin 2021, El Salvadori, Guatemala dhe Hondurasi morën midis 6 dhe 14 miliardë dollarë remitanca nga Amerika, që përbënin midis 16 dhe 23% të PBB-së së tyre, një numër që është rritur vazhdimisht vitet e fundit ndërsa emigrimi ndër-kontinental është rritur.
Politika e administratës së ardhshme për emigracion me aftësi të mëdha është më pak e qartë. Në qershor, Trump sugjeroi që studentët që diplomohen nga universitetet amerikane duhet të kenë të drejtë për leje qëndrimi të përhershme apo “green card”. Por, gjatë kohës që ai ishte president, administrata e tij e kufizoi emigracionin edhe për punëtorët me kualifikim të lartë. Nëse kjo ndodh përsëri, pjesët e tjera të botës mund të përfitojnë. Emigrantët e kualifikuar priren të jenë shumë të lëvizshëm. Nëse Amerika nuk i mirëpret më, ata mund të dynden në vende të tjera të pasura, anglishtfolëse, si Australia dhe Britania. Një hulumtim i Saerom Lee dhe Britta Glennon nga Universiteti i Pensilvanisë, sugjeron se programi kanadez i vizave për të ngritur një “startup”, i nisur në vitin 2013, çoi në një rritje prej 69% në tetë vitet në vijim të numrit të emigrantëve që u zhvendosën nga Amerika në Kanada për të krijuar kompani.
Politikat e sakta të Trump nuk do të jenë të qarta për muaj me radhë, por kush do të humbasë më shumë prej tyre është tashmë e qartë. Përballë barrierave të larta në të paktën dy fronte – tregtia dhe emigrimi – Meksika duket se po përballet me një dhimbje të madhe ekonomike. Administrata e re do të hedhë më shumë rërë në ingranazhet e makinës së eksportit të Kinës, duke komplikuar problemet e brendshme të vendit. Dhe në krye të tarifave, hendeku transatlantik në rritje për sa i përket barrës rregullatorë, mund të dëmtojë ekonominë europiane.
Lista e fituesve, nga ana tjetër, ka të ngjarë të jetë e shkurtër. Nëse ata i luajnë letrat e tyre si duhet, mund të përfshihen aleatë të ngushtë si Britania dhe Australia. Vendet që nxjerrin shumë naftë, të cilat dikur kishin suficit të madh tregtar me Amerikën, ndoshta do të mbrohen nga tarifat sepse, falë rritjes së prodhimit të naftës argjilore, SHBA ka qenë një eksportues neto i lëndëve të para që nga viti 2021.
If they can stay out of Mr. Trump's spotlight, smaller export-focused Asian countries could benefit from redistributing manufacturing away from China, as they have done in recent years.
But there are two continuing sources of uncertainty. One is the inherent unpredictability of Mr. Trump's policymaking. His courtiers range from Silicon Valley tycoons who want few restrictions on skilled immigration, to those in the "America First" camp, to mercantilists bent on reducing imports at all costs. Trump can use his tariffs Godfather-style, granting exemptions to countries and companies if they bow to his will. The White House will become a hub for lobbyists. Special favors can end up eroding competition and damaging America's reputation.
Another source of uncertainty is how governments around the world react to threats and sanctions from the US administration. In a zero sum world for trade, the temptation to impose retaliatory tariffs and other protectionist measures will increase. Many of America's trading partners will simply be hoping to avoid Trump's wrath. A bolder, if less likely, answer would be union. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a trade agreement between nations in the Americas and Asia, continued after Trump left office during his first term. More ambitious deals could keep the flame of international trade alive, waiting for America to come back to the table.
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