The next day Donald Trump was US senator, he entered trade war with China and Europe. But despite his bombast and taxes, the US trade deficit did not improve.
In fact, it deteriorated from US$ 195 billion in the first quarter of 2017 to$ 260 billion in the same period of 2021.
A number of selected items were subject to the Trump tariffs, which were set at a maximum of 25 %. However, his current strategy seems to be that the US will impose tariffs of 10 % or 20 % on the majority of imported goods. Taxes in Canada and Mexico could be 25 %, and tariffs on Chinese goods could be 60 %.
This revision appears to be drastically different from the previous one. What are the potential cases for the US, the UK, and the world economy then?
Situation 1: Fight
Taking the president-elect’s expression to the email, if Trump stands his ground on across-the-board taxes one effect may be that the US market faces higher costs because of more expensive goods. The desire for US-produced goods may rise, which will probably result in higher domestic wages and a spiraling inflationary trend.
It is not difficult to imagine the US market accelerating. But, there are also opposing causes. Higher taxes and significant US investment are likely to cause the money to rise, resulting in imports becoming less expensive at the frontier before tariffs are imposed. This may eat away at prices.
The common sector’s claim of massive layoffs may also lessen the strain on the job market. Technology advancement, such as the press for autonomous vehicles, might also have an impact.
Lastly, easing environmental laws in the energy industry and potential serenity with Russia and perhaps even the Middle East could increase energy prices.
Scenario 2: The art of the bargain
Donald Trump’s interpersonal elections are well-known. This translates to being unburdened by the foreign regulations that have guided global industry since the Second World War.
This trend is further heightened by the election of Scott Bessent as treasury secretary. In his thoughts, taxes are a” sanctions resource” in wider political and economic game.
In trade for a wide range of possible concessions, the US good dangles somewhat attractive terms to get its business in a good scenario for potential trade relations with the rest of the world. These might include more options for US investment or exports, as well as a stronger political position and significant US investment.
Nevertheless, supply chains could undergo significant restructuring, with imports from the most effective nations being replaced by less efficient ones. This may lower the US’s trade deficit with China while reducing its trade imbalance with the EU, UK, Mexico, and Canada.
May these agreements been extended to China, and likely China accept them? is a looming question. If not, it is possible to see two economical alliances, one centered on China and the other centered on the US.
Scenario 3: Punishment
In a second – undoubtedly doubtful situation, the Chinese government may recognize US demands to adjust their bilateral deal imbalance in the belief that the moment is not yet right to challenge US supremacy.
Maintaining an export-led development design, building power, breaking into international markets and only sitting out the Trump administration may be China’s best plan. The Chinese authorities would have to consent to larger and more quickly purchased American-made goods and services than the previous arrangement between the Trump and Xi governments.
But what about the UK and Europe? UK export to the US may face a 20 % tariff, reducing profits and impacting on those British suppliers exporting goods the US buys, like medicine or equipment, for example. The UK will have to decide whether to fight and impose levies on US products. And if so, at what levels?
The UK’s objectives are not in conflict with the US, but what will happen then will depend on the demands the Trump administration makes. In the event that regional trade blocs emerge as a result of various nations ‘ hostile actions, there is already talk about whether the UK should choose the US or the EU.
Although there will be a significant difference, the consequences may be comparable for the EU. The EU as a whole has a similar-sized business to the US and its own business plan. The EU and US are thus strongly motivated to launch retribution and a business battle.
The UK may find it more difficult if the EU decides to proceed in that direction. In this situation, the English may later need to choose a part. It would have to decide between its unique partnership with the US and a more decline in trade with the EU, which is its closest marketplace. Or it would have to choose to become more politically and economically connected to the EU.
Unfortunately, when countries close their borders to business, they are also – apparently mistakenly – readying themselves for fight.
Agelos Delis is senior teacher in finance, Aston University and Sami Bensassi is audience in trade and development finance, University of Birmingham
This content was republished from The Conversation under a Creative Commons license. Read the original content.