Trump S Tariffs Market Jitters But Impact Likely Limited

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 Donald Trump has overturned the cart with his illogical, hasty, and emotional imposition of tariffs across the board, leading to considerable uncertainty in markets, especially stock markets, which are tumbling.
That’s the way markets react. On good news, they rise too sharply, and on bad news, they go down too fast. If people think Armageddon is around the corner, fear not, the damage is almost always less dire than what the disaster portends.
It helps to look at things broadly. Remember, the tariffs affect one country’s trade against the rest of the world, not the trade of the rest of the world with each other. That does not change.
Yes, the US is a big exporter and importer, but how big will give us an indication of the impact on the world trade in goods. We exclude the trade in services because the so-called invisibles, such as insurance, freight, and other intangibles, are not affected by the tariffs.
ADSBest estimates put the total value of trade at around US$50 trillion, including exports and imports per year.
Which is the world’s largest trading nation? If you said the US, you are wrong. China is the largest - it has been for the last eight years, because of its strong position as the largest exporter in the world.
US President Donald TrumpThe US is the second largest goods exporter in the world, behind China. The US remains the largest goods importer in the world. US goods imports from the world totalled US$3.2 trillion in 2022, up 14.6 percent (US$413.7 billion) from 2021.
China was the top supplier of goods to the United States, accounting for 16.5 percent of total goods imports.
The top five suppliers of US goods imports in 2022 were: China (US$536.3 billion), Mexico (US$454.8 billion), Canada (US$436.6 billion), Japan (US$148.1 billion), and Germany (US$146.6 billion). US goods imports from the European Union’s 27 countries was $553.3 billion.
The table shows the top 10 trading nations. At US$5.41 trillion, the US accounts for 10.7 percent of goods traded. China (12.5 percent) and the European Union (11.7 percent) were ahead, indicating the impact on international trade from the Trump tariffs is about one-tenth of global trade.
That is not enough to make a large dent on international trade - 90 percent remains unaffected, and the actual impact may be smaller because of bilateral negotiations that the US will engage in with other countries to reduce tariffs.
Overall, if, like other things, Trump’s bark is not nearly half as much as his bite, then the magnitude in terms of value of world trade will be closer to five percent, not nearly enough to cause a major dislocation to world trade.
Also, Trump’s way of calculating reciprocal tariffs is rather crude - expressing a country’s tariff as half of the country’s trade in goods surplus as a percentage of the total imports of US goods by that country.
This is added to an unexplainable baseline tariff of 10 percent for all countries - the minimum tariff is 10 percent (UK, Singapore) and the maximum 46 percent (Vietnam).
Tariff rates likely to decrease
These current rates are likely to decrease rather than increase given Trump’s proclivity to overstate tariffs and reparations as a bargaining tool in his transactional play over international trade, investment, and finance.
ADSAny further reduction in tariffs is likely to further reduce the impact on international trade and therefore any adjustments to the international economy.
If other countries are circumspect enough not to retaliate but act in their own interests in terms of maintaining stable prices for their own people, they may be able to soften price impacts on themselves, even as US citizens face higher prices.
Meantime, the world will no doubt celebrate the erosion in Trump’s popular rating. A Reuters report on April 2, before the tariff announcement, said it fell to 43 percent, the lowest since his return to office, compared to 47 percent shortly after taking office on Jan 20.
It will go down further now as price increases begin to bite the US consumer and business confidence wanes. If Trump is not pushed out of the presidency before his term expires in less than four years, it is almost certain he won’t get his unconstitutional third term. Who would support him?
The markets will take time adjusting to this, but there should be some recovery further out, so long as Trump does not do something else more stupid. On the pessimistic side, the market may fall a bit more for a stupidity discount.
Overall, things are not as bleak as they seem. - Mkini
P GUNASEGARAM says the world economy has not fundamentally changed - yet.
The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.

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