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The unpredictability of Trump’s tariffs will increase the pain
Businesses are struggling to adjust
The Economist
Leaders
Mar 27th 2025 | 712 words | ★★☆☆☆
Donald trump has already raised the average tariff on America’s imports by about twice as much as he did in his entire first presidency. Just as damaging, though, has been the uncertainty about what comes next.
After April 2nd—“Liberation Day”, Mr Trump calls it—there will be another round of levies. The president promises 25% tariffs on all imported cars and country-by-country “reciprocal” tariffs based on how much his administration objects to a counterparty’s trade and tax policies. Will these plans change? Who knows? Mr Trump’s use of emergency powers means that he can do as he pleases.
This freedom may suit him. It does not, however, suit America’s businesses, which have no idea how bad the trade war will get; nor its consumers, who fear future inflation. The liberation America needs is from the paralysing uncertainty brought about by Mr Trump’s chaotic approach.
Since the president came to office, hefty tariffs on Canada and Mexico have twice been announced only to be mostly postponed. A long-threatened 10% levy on China has doubled in size. Industry-specific measures have proliferated. Mr Trump has already struck aluminium and steel imports, and has pledged new levies on chips, lumber and medicines. The price of copper has soared as reports swirl that it is to be targeted next. His justifications are dizzying: tariffs have been linked to border control, drug smuggling, vat, trade deficits, TikTok and Mr Trump’s territorial ambitions. The president recently threatened to put levies on any country buying Venezuela’s oil. Such “secondary” tariffs, placed on the trading partners of target countries, would be devastating.
What’s a business to do? When currying favour with Mr Trump, firms play up their investment plans. But when speaking to shareholders, they warn about the unpredictable environment. Surveys show an alarming fall in planned capital expenditure. The White House claims that, by prompting firms to invest in America, its tariffs on cars will boost gdp, jobs and real incomes.
Ironically, however, the uncertainty makes it harder for tariffs to change investment patterns. Factories last for a long time. Building one in response to a tariff that could disappear at any moment is a gamble. The tariffs Mr Trump implemented during his first term failed to stem the secular decline in American manufacturing jobs. They did, however, push up costs for downstream producers, such as the firms that made goods using imported steel.
It would be naive to think that the tariff regime will be settled on April 2nd. The president exults in his power to dole out punishment and grant exemptions at will. It makes companies and countries beat a path to his door to beg for mercy. In contrast to his first term, Mr Trump seems little concerned by the falls his policies cause in financial markets. And this time his staff are proving to be pliant. Scott Bessent, a hedge-fund titan turned treasury secretary, used to be a source of comfort to investors. He now says that market corrections are “healthy” and the economy could benefit from a “detox”.
Although Mr Trump is committed to tariffs, he is hardly a details man: his unpredictability partly reflects his malleability. This creates an opportunity. His advisers are debating how to implement his agenda. Some reportedly favour using emergency powers only as a stopgap during which the more studious approach of his first term—in which tariffs followed investigations—can be resurrected. Establishing even a bare-bones process would represent a big improvement.
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America’s trade partners must also consider how they can stabilise the situation. It will be tempting to retaliate on April 2nd, as many countries have against existing levies. But retaliation carries a cost, because it brings economic pain, and because it might stoke further escalation from America. For most countries retaliation is simply self-defeating. Even those who have the clout to push back should be careful how they use it.
Better, then, to offset the damage America is inflicting. Given Mr Trump’s reciprocal approach, some countries may be able to win concessions by lowering their own tariffs. And countries could bring down the barriers that exist among themselves, integrating with each other as Mr Trump pulls America back. The president is intent on wreaking trade havoc. It need not span the globe. ♦
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