So, what’s the latest in the saga of Trump’s tariffs? After the administration raised tariffs on imports from China
The White House has indicated that the exemption for all Apple products is a short-term measure, expected to last 1-2 months. However, there are three compelling reasons to believe this is highly unlikely to be the case …
A recap of events
- February 1: Trump enacts a blanket 10% tariff on all imports from China
- February 4: This tariff goes into effect
- March 4: The tariff is raised to 20%
- March 12: The increase is implemented
- April 2: An additional 34% tariff is added; China responds with a matching increase
- April 7: Trump threatens a further 50% hike if China doesn’t withdraw equivalent tariffs
- April 9: Tariffs on Chinese goods rise to 104%; China retaliates
- Later that day: Trump ups the tariff to 145%
- April 12: Trump exempts categories that include all Apple products
- April 13: The Commerce Secretary states this is merely a 1-2 month pause
Two solid reasons the Apple tariffs won’t be reinstated
In the middle of that timeline, I predicted that Apple products would likely receive exemptions, and indeed that happened. There are three reasons why that situation is unlikely to change.
First, the escalation we’ve witnessed is clearly unsustainable. Each time Apple announces a tariff increase on Chinese products, China responds proportionately with their own tariffs on American goods. Trump’s tariffs have escalated from 10% to 20% to 34% to 104% to 145%, indicating that there would be no end to this ongoing tit-for-tat, even if Trump were to eventually propose tariffs at 1,000% or more. This reflects what one might call a lesson in Why Tariffs Don’t Work 101.
Second, the repercussions on both the US and global economies have been severe. It’s not just about what has transpired; it’s the unpredictability of US economic policy that poses challenges. Businesses struggle to make future plans in an environment where regulations are subject to rapid changes week by week. Companies need to set production schedules months ahead and plan capital investments like new plants years in advance; this is simply unfeasible in such an erratic economy. Stability is crucial for starting to mitigate the economic damage.
And here’s a critical third reason
Third, and perhaps most significantly, the effects on the US bond market indicate a looming full-scale US recession.
The loss of confidence in the US economy has led to a significant sell-off of Treasury bonds. In response, the US government has had to raise the yield (interest rates) on these bonds, which affects the broader market, making it costlier to borrow for consumers and businesses alike.
A swift increase in credit costs can rapidly lead to a recession, and even Trump acknowledged that it was the bond sell-off that compelled him to “pause” tariff hikes.
Some speculation online suggests that Canadian Prime Minister Mark Carney orchestrated a coordinated bond sell-off with European Union and Japanese governments to pressure Trump. As Snopes reports, the main source for this claim is a sensationalist figure known for conspiracy theories, so I don’t give it much credence.
Yet, whether intended or organic, the outcome is unchanged. Each attempt by Trump to reinstate tariffs will erode confidence in the US economy, resulting in more bond sales, which raise interest rates, further jeopardizing the US economy. This sets off a downward spiral from which escape requires reversing the policy that instigated it.
Ultimately, Trump’s threats will likely fade away quietly, or he will find a pretext to shift his stance.
Photo by Maxim Hopman on Unsplash
