Trump appears 'quite resolute' with tariffs as other countries retaliate, economist says

(TNND) — The EU and Canada announced retaliatory tariffs after President Donald Trump increased tariffs on all steel and aluminum imports to 25%.

The EU called Trump’s tariffs “unjustified” and “disruptive” in announcing its two-step approach that is slated to take effect next month and would apply to as much as $28 billion in American exports.

“We deeply regret this measure. Tariffs are taxes. They are bad for business, and even worse for consumers,” European Commission President Ursula von der Leyen said in a news release. “These tariffs are disrupting supply chains. They bring uncertainty for the economy. Jobs are at stake. Prices will go up. In Europe and in the United States. The European Union must act to protect consumers and business. The countermeasures we take today are strong but proportionate.”

Canada also plans to impose retaliatory tariffs on about $20 billion of U.S. goods beginning Thursday.

Trump told business leaders Tuesday that his tariffs will spur investments in U.S. manufacturing.

“The biggest win is if they move into our country and produce jobs,” Trump said at the Business Roundtable. “That’s a bigger win than the tariffs themselves. But the tariffs are going to be throwing off a lot of money to this country.”

The tariffs have made American consumers uneasy and sent shockwaves through the stock market.

So, are they good for the U.S.?

James Knightley, ING’s chief international economist, said there’s not a simple answer.

There’s a good argument that bringing factories back to the U.S. and promoting job creation are good ambitions for the country, he said.

But there are questions over whether tariffs are the right tools to achieve those goals.

“Well, in the near term they can cause quite a lot of disruption,” Knightley said of tariffs. “And President Trump is now talking about this, this transition between getting to the point that we are now to his aspiration for more manufacturing and more manufacturing jobs in the United States.”

Importers pay the price for tariffs, not foreigners, Knightley said.

Those costs squeeze corporate profits, get passed along to American consumers, or both.

Knightley said companies want the fewest barriers possible to their operations, and many American businesses have invested in global supply chains that bring down their costs or improve their quality.

“Anything that rips that up is going to be particularly damaging for them, but you can also see there are upsides,” Knightley said.

Trump and his team have mentioned multiple reasons for imposing tariffs, including reshoring factory jobs, getting more favorable trade deals and pressuring Mexico and Canada to help slow the flow of the deadly drug fentanyl.

Knightley said all motives could be at play for the Trump administration.

Because the U.S. runs such a big trade deficit, and foreign countries run such big trade surpluses with the U.S., tariffs might be seen as a relatively useful way of changing behaviors elsewhere, Knightley said.

“And so far, that seems to be delivering some successes,” Knightley said. “What the main aspiration is, I'm assuming it is trying to deliver growth for the U.S. economy. And I think that primarily is the main aim, reshoring of jobs, reshoring of manufacturing.”

It’s too early to see a lot of meaningfully positive outcomes, he said.

But he did note, as an example, that Mexico has beefed up its border security.

Trump has twice delayed announced tariffs on both Mexico and Canada, which Knightley said has added to economic uncertainty and an erosion of consumer and business confidence.

“This is actually probably the worst of all situations possible, in that everyone's aware of the tariffs, everyone's getting concerned about the tariffs, they're changing their behavior because of the tariffs, yet the tariffs haven't actually come in,” he said. “And we've not reaped any tax revenue yet.”

There’s evidence some businesses are preemptively raising their prices ahead of anticipated tariffs. Knightley noted that the National Federation of Independent Business found a 10-point jump in the proportion of companies raising their prices right now.

February’s inflation, as measured by the popular consumer price index, came in softer than expected Wednesday, Knightley said.

Inflation increased at a 2.8% annual rate, the CPI showed.

“But the market reaction was rather muted, because when you look in the details, it was overwhelmingly driven by a 4% month-to-month drop in airline fares,” Knightley said. “Now, we actually saw clothing prices rise quite substantially, medical costs rise, services still rising pretty strongly, as well. So, on the headline level things looked a little bit better. But the underlying story still, there's still stickiness in inflation. And there's a general sense that if we've got stickiness, and then you've got the threat of tariffs coming in as well, it could just keep inflation running well above target for longer.”

The lack of clarity over how tariffs will impact inflation keeps the Federal Reserve’s hands tied from lowering interest rates, Knightley said.

The retaliatory tariffs announced by the EU and other countries hit American companies a couple of ways, Knightley said.

Retaliatory tariffs can make American-made products less competitive in foreign markets, but there’s also been a growing hostility toward American-made products in other countries.

Trump has imposed higher tariffs on China, which has enacted retaliatory tariffs.

Knightley said there’s “a sense of nervousness coming through in Asia that it's not just going to be China that's in the firing line.”

But the bigger impacts might be felt in Europe.

“Donald Trump could actually be kick-starting the European economy,” Knightley said.

Tariffs could spur inflation and squeeze profit margins in Europe, too.

“But at the same time, Donald Trump's robust policy views on Ukraine, on trade, on European defense spending, does seem to be triggering action at the European leadership level,” Knightley said. “So, we've had this willingness from the European Commission to allow countries to run higher levels of debt as a proportion of GDP.”

Germany seems poised to spend a lot to boost its military and infrastructure.

And European equity markets are rising while U.S. markets are falling.

Knightley said Trump is likely concerned about the U.S. stock market losses stemming from tariff concerns.

And Knightley thinks Trump’s talk about a transitionary period for the U.S. economy is acknowledgement of that.

But Knightley said Trump appears “quite resolute” about using tariffs to achieve his policy goals. And Knightley doesn’t think the market has struggled enough to derail the president’s plans.

“Now, if we see equity markets down 20-25% and we're talking bear markets, we may see a bit of a retreat that is very heavily artistically directed” to claim victory and move on to other fiscal policies, Knightley said.