Accelerating BehaviorModification

For several weeks legacy andsocial media have been screaming about Trump’s supposedly reckless tactics ofthreatening draconian tariffs on everyone including our staunch allies, Canada,Mexico and the European Union (EU). What no one mentions is that this bombasticverbiage is historically communicated behind closed doors.

Trump has promised transparencyand has delivered it masterfully. Trump has refreshingly laid bare to thepublic the real politik that global trade is nothing more than a streetfight of commercial existential importance devoid of diplomatic soft language whichis now being streamed live.

The purpose of Trump’s tactics isto accelerate behavior modification of countries and organizations that areexperts at dragging their feet until a more “amenable” US leadership assumesoffice in order to continue to avoid responsibility and accountability to theiragreements.

Unlike actual military wars,these trade issues can be resolved with a stroke of a pen to be effective orsuspended immediately.

US Exports to China

Mainstream and social media incessantlyharp on the preponderous amount of goods that we import from China, but rarelyhow much and which products the US exports to China.

The following chart entitled Which Products Does the US Exportto China,provided by the US International Trade Administration, gives an overview andchanges since 2023.

U.S. IMPORTS

The European Union

The following chart entitled Share of EU Imports by State from the EU provided by theCensus Bureau and CNBC, indicates that in 2024 the goods imported by the EU was$600 billion. A comprehensive US dollar breakdown can be found in theaforementioned link.

The following states depend onalmost 50% of EU imports: Puerto Rico, Indiana and North Carolina.

The top 3 EU imports are:

·      Motor vehicles

·      Pharmaceuticals: critical itemsinclude surgical & medical instruments, medical devices (CRT Machines),vaccines, hearing aids and artificial joints

·      Crude oil

Present-day the US is battlinghigh EU tariffs whose main components include:

·      Unfair taxation of US firms

·      Europe’s Value Add Tax (VAT)

·      Potential digital services taxes areunder consideration

This explains why there are few,if any, new significant American business investment in Europe even forAmerican mega-corporations, that has persisted for decades.

Mexico & Canada

The following chart entitled U.S. Import Dependence on Canadaand Mexico,provided by the US International Trade Administration (ITA), an agency in theUS Department of Commerce indicates the shared percent of imports from Canadaand Mexico.

U.S. TRADE LEVERAGE

The US’s biggest trading partnersare China, Mexico and Canada and receives 43% of our total annual imports fromthese three countries. Not surprisingly resource-rich Canada and Mexico shareour border and are easily accessible. As the world’s largest importer makes it acritical market for China, the largest manufacturer and exporter in the world withlow-cost labor.

The mainstream media presents amacro-perspective on potential trade wars and tariffs with selectivehigh-profile commodities and goods.

A GAME OF LEVERAGE

The following charts provide amore detailed and nuanced visual of how each state is impacted by trade withthe EU, Canada, Mexico and the rest of the world.

The following chart entitled How Much Leverage Does the USHave in the New Trade Wars provided by UN Comtrade.

POLITICAL SIDE EFFECTS

Political Popularity Boosts

Ironically Trump’s draconian tarifftalk has triggered strong nationalist unity across the political spectrum in manycountries. For example, recently Mexican President Claudia Sheinbaum received amassive approval boost for “standing up” to Trump.

Nonetheless, foreign leadershipis well aware that the Trump administration’s tariff threats is a wake-up callto change their practices to match the agreed upon trade agreements which they’veflouted for years.

Domestic Market Impacts 

Perhaps it’s coincidence or afavorable byproduct for Trump, but the rough trade war talk and theunconventional statement by Trump that the possibility of a recession is notout of the question, shocked the markets into correction territory.

The market correction hasdeflated a frothy market in order to bring the bond & equity markets morein line with the economic fundamentals. A market which closely hews to thefundamental establishes a normal baseline rather from speculative-driven Icarus-levelheights.

Because of the market’sprecipitous decline, Trump’s political adversaries suffered large financial losses.Their unusually massive personal financial portfolios had grown exponentially comparedto their modest high-level government salaries.

Rapid Resolution

The application of tariffs, likesanctions, don’t have an immediate economic effect. There’s a delay in which thereare adjustments at each stage of the supply chain. The same applies whentariffs are lifted in the form of residual price effects with goods ininventory and enroute.

Think of it as commercial scartissue resulting in soft costs and additional insurances in contractual terms& conditions remain.

However, I believe Trump’s tariffwars are more akin to skirmishes, more war of words; in other words short-term.A protracted trade war does not serve the Trump administration well. Histactics are carrot & stick on steroids.

By fall, all this tumultuous mainstreamchatter will be a memory as the administration tackles other pressing problems.

Conclusion & Takeaways

Trump’s “shock & awe” tariff tacticis a gamble that countries will either adhere to earlier agreements or torenegotiate quickly to a “fair & reasonable” re-negotiation.

The US has the overwhelmingeconomic upper-hand since these foreign countries are in a position ofpolitical and economic weakness whose threats of counter-measure tariffs aremerely a beau geste in face of American economic superiority.

European leadership walks a tightrope by standing up to the US (albeit with speeches) yet risk alienating theirconstituency and losing already weak legislative support if they fold toAmerican pressure.

With respect to China, although PresidentXi has a firm grip, he faces severe deflation which has triggered growingsocial unrest. For this reason, numerous economic indicators are no longer publishedand the remaining ones provide questionably growth figures. Most importantlyfor Xi, he can ill afford to lose face of which Trump is well aware. This iswhy I believe that trade talks with China will proceed amicably.

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