President-elect Trump has promised to implement a multitude of tariffs once he takes office next week. The inauguration is Monday, Jan. 20 — mere days from now. As we have heard it, his administration has prepared 100+ executive orders to go into effect upon his inauguration. Will tariffs be among them? If so, how does our industry respond?
A few observations:
- Similar to the last few months leading up to the election, we now see a slow-down on any major decision making. As one executive proclaimed, “We are pencils down until 1/20/25.”
- Will Trump really enact tariffs? We have canvassed dozens of clients and friends, and there is a mixed bag of opinions. Many speculate he is more than likely bluffing — to negotiate better deals with our many partners on trade, border security, etc. Others believe he will stick to what has been stated previously and enact trade barriers in hopes of reducing trade deficits, onshoring production and cranking up U.S. factories.
- What about Mexico and Canada?
a. There clearly needs to be reform around the border. However, Mexico is a key U.S. trading partner, and the U.S. needs Mexico to have a strong economy and stable politics. In addition, many Mexican factories are set up with IMMEX (or maquiladora) and are supplied by U.S. raw materials and components. Tariffs would be inflationary, just at a time when the Fed seems to have inflation largely under control.
b. Canada is one-tenth the size of the U.S. and a key trading partner. Most Canadian companies ship large percentages of their goods into the U.S., so a tariff would certainly curb Canadian exports. On the other hand, outgoing Prime Minister Trudeau has promised an immediate 25% tariff on U.S. imports if this happens, which would impact U.S. producers shipping product into Canada. This is called a “tit-for-tat” reaction. Who wins and who loses in this stand-off is unclear. - As for China? There is already a 25% tariff in place from the first Trump term, initiated over 2018-19. While disruptive at first, most importers have figured out how to renegotiate prices with vendors, increase prices to their customers or have moved to alternative source countries. With the threat of an additional 10%+ tariff, the Chinese authorities are surely exploring various options such as adjusting the foreign exchange rate and providing subsidies to exporters, amongst others.
- Rest of the World? It is possible tariffs could be enacted against Europe and other Asian countries. Would this result in retribution tariffs? It is hard to speculate on this point.
- Finally, can or will President Trump act unilaterally? There is a debate that the president can invoke national security concerns and create tariffs based on executive order. Others say that tariffs and trade agreements require a full legislative process and due cause evidence — which could take six to 12 months to create a new trade agenda. So, what will happen? We will see next week. As Karl Rove stated this week in the news, “We must take President Trump seriously, but just not literally.” Meanwhile, we are packing and getting ready for the World Market Center in Las Vegas next week. See you there.
Tim Stump is president of Stump & Co., a Charlotte, North Carolina-based merger and acquisition specialist.