Trump Administration Sledgehammer

Tariffs

Investors are scrambling to come to terms with the Trump administration tariffs and a global market that was in freefall.

There are investors that believe that the Trump administration was not fully transparent about its tariff plans. Some have suggested that the Trump administration blatantly lied about its tariff plans.

That said, no one should be surprised that Trump may have changed his mind about the tariffs.

Prior to the Liberation Day announcement, the general consensus amongst investors, companies, and institutions was that the Trump administration would apply reciprocal tariffs.

Reciprocal tariffs would be applied as a lever to encourage countries to lower their tariffs, resulting in lower prices for American citizens.

That consensus was based primarily on the numerous news events Trump and Howard Lutnick held before Liberation Day.

Liberation Day

The infamous board that was presented on Liberation Day painted a different picture.

At first glance, the tariffs were to be based on the U.S.’s trade deficits with each country, a significant departure from the reciprocal tariff narrative.

The equation used to determine the individual tariffs also raised more questions than it answered. Why, for example, is a 10% tariff being applied to Australia when the U.S. has a trade surplus with Australia?

The answer may lie in an interview with Lutnick, in which he suggested that wide-ranging tariffs were necessary to stop “countries that try to arbitrage America by going through those countries to us.” He specifically highlighted China.

Peter Navarro also suggested in interview that companies would not be encouraged to invest in the U.S. if they thought that the tariffs were temporary. That the tariffs can’t be temporary because the bigger problem that they’re designed to fix is non-tariff barriers.

So, the narrative seems to have shifted from reciprocal tariffs to trade deficit tariffs and now to non-tariff barriers.

China

Is it possible that the focus of the tariffs is China? A tariff sledgehammer to crack a nut?

If a tariff is applied to every country, then China cannot reroute exports to the U.S. via other countries to avoid tariffs.

Navarro consistently views globalisation as having a negative impact on the U.S. More specifically, he promotes the view that the U.S. should de-couple from China.

Are these tariffs a first step in that direction?