It is often said of President Trump that the key to understanding him is to take him seriously, but not literally.
Applying that logic to his latest tariff tantrum might have worked, at least in the case of Mexico and Canada. Trump’s threat to impose 25% tariffs on imports from the U.S.’s closest neighbours and trading partners was definitely serious, but at the last moment he backed away from literally doing it (at least for a month) after Ottawa and Mexico City offered concessions.
In other cases, it’s probably best to take Trump both seriously AND literally. He threatened 10% tariffs on a range of Chinese imports and has gone ahead and done it. China responded with 15% tariffs on U.S. exports of coal and liquified natural gas, and an anti-trust investigation into Google. The world’s collective head is spinning as it tries to work out what Trump might say (and actually do) next.
For businesses, especially those with global operations, it’s a minefield. UK banks, retail and consumer stocks have all traded lower since Trump’s announcement on expectations that future tariffs could end up having an impact on their revenues.
U.S. technology companies such as Intel, Nvidia and Google are trying to work out what the impact on their operations might be if Beijing does follow through on its threat to launch anti-trust probes. European carmakers are worried that if Trump proceeds with imposing tariffs on the European Union, as he has said he will do, they will end up in the crosshairs. And Europe’s agricultural exporting industries may well be targeted, too, not to mention chemicals, pharmaceuticals, aviation and a range of luxury and consumer goods sectors.
For companies trying to figure out how to respond, the best advice might be to take a deep breath and be patient.
Trump’s ultimate aim is not to destabilize the global economy or freeze international trade – that would do as much harm to the United States as every other country. He is, as is often pointed out, transactional. He wants concessions in other areas – on border security, immigration, drug smuggling, regulation, market access – in exchange for withdrawing the blunt instrument of U.S. tariffs.
Once the threat is made, it’s really about negotiation. That comes down to politics and diplomacy – leaders whose countries are threatened need to pick up the phone to the White House and work out what Trump wants, and whether they’re in a position to offer it.
For companies, there’s definitely a need to communicate their concerns to governments wherever they operate. But it should be done quietly rather than publicly. Speaking out too prominently is just the sort of thing Trump likes to call out and take on, which can make shareholders even more nervous.
In the end, it is patience and purposeful diplomacy that tends to resolve international disputes.
Trumpian tariff threats are serious. But it’s what lies behind the sound and the fury that literally matters.
Photo credit: @Reuters
