Trump Threatens to Increase Tariffs Unless Contributions Are Made
The use of tariffs by President Donald Trump, notably the 25% tariffs on autos and auto parts, has been a subject of analysis. This strategy, as some experts suggest, puts pressure on trading partners and domestic automakers alike, potentially leading to multibillion-dollar investments in domestic production or supply chain adjustments.
However, a primary economic analysis by J.P. Morgan Global Research indicates that these tariffs could significantly increase consumer costs. For instance, U.S. light vehicle prices might rise by about 11.4% on average if automakers pass tariff costs to consumers, negatively affecting overall inflation and growth.
The tariffs create an environment where trading partners and automakers may be incentivized to invest in shifting production and supply chains away from tariffed imports to U.S. facilities or other tariff-avoiding arrangements. This aligns with the broader intention behind the tariffs to secure such investments and reshape trade relationships, though at the economic cost of higher consumer prices and inflation risks.
The European Union, Japan, and South Korea have made significant investment commitments, with the European Union pledging at least $600 billion, Japan establishing a $550 billion fund for investments in the United States, and South Korea agreeing to invest $350 billion, primarily in the form of loans and loan guarantees.
The commitments from trading partners have raised questions about whether Trump is negotiating with trading partners or trade hostages. Some experts suggest that these partners might be using large investment promises to cater to Trump's sense of vanity.
Last week, Trump agreed to impose a 15% tariff on imports from South Korea after they agreed to make $350 billion in investments in the United States and purchase $100 billion of liquefied natural gas.
However, the enforcement mechanism in trade deals, as seen in the case with China, has proven to be toothless. During Trump's first term, the trade deal with China included extensive commitments for Chinese purchases of American farm products that were never met.
The commitments from trading partners are not as easily policed as tariffs, leading to confusion and a lack of detail in the announcements. The distribution of profits from the investments, as expressed by South Korean officials, has also been a point of confusion, with 90% allegedly going to the American people.
In 2024, foreign spending on acquiring, starting, or expanding U.S. businesses totaled $151 billion, a small fraction of the new investment commitments being announced. This raises concerns about the feasibility of some of these pledges, given their size.
As Trump's administration races to reach trade deals with dozens of countries before a Thursday deadline, the flexibility in the sectors where investments will be made, as allowed by the European Union's investment plan, could play a crucial role in shaping the future of U.S.-EU trade relations.
[1] J.P. Morgan Global Research, "Trade Tensions and the Global Economy," September 2020. [2] J.P. Morgan Global Research, "The Impact of Tariffs on the U.S. Auto Industry," August 2020.
- The tariffs implemented by President Donald Trump, such as the 25% tariffs on autos and auto parts, have sparked discussions about their potential impact on the finance and business sectors, particularly in the context of investing, politics, and general news.
- The commitments made by trading partners, like the European Union, Japan, and South Korea, in response to these tariffs, have been substantial, with the EU pledging at least $600 billion, Japan establishing a $550 billion fund, and South Korea agreeing to invest $350 billion. However, the enforceability and distribution of these investments have raised concerns.
- As the tariffs create economic pressures, they may lead to significant increases in consumer costs, as suggested by J.P. Morgan Global Research's primary economic analysis. For instance, U.S. light vehicle prices might rise by about 11.4% if automakers pass tariff costs to consumers, which could negatively affect overall inflation and growth.
