Upcoming U.S. Trade Policy and Likely Impacts
2025 Winter - Aluísio de Lima-Campos
As we approach January 20, here is what can be expected for U.S. trade policy based on official announcements and comments by Trump and his team, which, as of now, are just appointments still subject to approval by Congress.
The Trade Team
First, Trump’s selections for the leading positions in trade policy include Howard Lutnick for Secretary of Commerce, who has been tasked with leading the U.S. trade and tariff agenda, with direct oversight of the Office of the United States Trade Representative (USTR), and Jamieson Greer, an experienced trade lawyer, to be the U.S. Trade Representative and focused on implementing tariff policies and defending American manufacturing, agriculture, and services, as well as opening up export markets. Robert Lighthizer, who served as USTR in Trump's first administration (when recently appointed USTR Greer was his Chief of Staff), has been asked to "run US trade policy." Although not officially announced for a formal position, Lighthizer's role suggests he will continue to influence trade policy in some capacity. Scott Bessent has been picked to lead the Treasury Department. Bessent is known for his background in hedge fund management (including a long association with George Soros’ fund management firm) and his support for tariffs as a negotiating tool. These selections reflect Trump's emphasis on trade policy, mainly on tariffs and rebalancing trade deficits. However, the exact roles and the extent of their influence can be subject to change based on the administration's final structure and any congressional confirmations required.
The Policy
As it looks right now, trade policy will focus on tariffs. Trump has historically favored tariffs as a tool for trade negotiations and economic policy. There are indications that his administration might pursue a strategy involving 'universal' tariffs, targeting countries like China, Canada, and Mexico. Some reports suggest these tariffs might be more selective than previously proposed, but Trump called those reports “fake news” in his January 7 Mar-a-Lago press conference.
Trump's preference for bilateral agreements over multilateral ones is expected to persist. His administration has shown a willingness to use tariffs as leverage to push for negotiations that favor U.S. economic interests, as seen with the renegotiation of NAFTA into the USMCA. This approach aims to ensure economic gains for the U.S., focusing on job creation and reducing trade deficits. Such a policy also suggests that the upcoming trade team will not give the WTO and international trade rules much attention.
Trump has utilized national security justifications for imposing tariffs, notably on steel and aluminum from various countries under Section 232 of the Trade Expansion Act. This intertwining of trade with national security will probably continue, potentially expanding to other sectors or countries considered to pose security risks. He is invoking national security to pursue control of the Panama Canal and the purchase of Greenland.
Global Trade Relations and Economic Impacts
Global trade relations will likely suffer from aggressive tariffs and trade threats. It could increase tension with trading partners, possibly resulting in retaliatory measures. This might disrupt international supply chains and have domestic inflationary effects due to increased costs for consumers and businesses, especially those highly dependent on imports. However, this approach might also be used strategically to negotiate better trade terms or to encourage domestic production.
On the economic impact of this trade policy, while tariffs might protect some domestic industries, they've historically led to higher costs for U.S. businesses and consumers, potentially impacting overall economic efficiency and job markets. The policy's success in reducing trade deficits or boosting domestic employment has been debated, with previous efforts showing mixed results. The impact on prices, however, is almost assured in the short term. The only expectation is by how much, as reflected by ongoing increases in U.S. Treasury yields.
Financial markets are experiencing a mixed reaction to Donald Trump's announced trade policy, with enthusiasm and caution evident across different sectors and markets. After Trump's election victory, U.S. stock markets initially surged, with the S&P 500 and other major indices hitting record highs. This was mainly due to expectations of pro-business policies, tax cuts, and deregulation. However, there has been a negative impact on stocks of import-dependent businesses and increasing caution by investors concerning sectors like technology, which might face higher tariffs or regulatory changes.
In his upcoming term, Trump's trade policy would likely emphasize protectionism, focusing on tariffs to negotiate better trade deals, protect national industries, and address trade deficits. However, the exact implementation, scope, and impact would hinge on various factors, including global economic conditions and the responses of U.S. trade partners.