(Bloomberg Businessweek) -- There will be tariffs. Extra-large ones on imports from China and medium-size ones for the rest of the world. At least that’s what Donald Trump pledged on the campaign trail. But if there’s anything we learned during his first presidency, it’s that this is a man who relishes chaos, pitting members of his cabinet against each other or making sudden policy U-turns that catch even his closest advisers unawares. And that’s one reason to be less pessimistic about the fresh wave of protectionism he’s promised to unleash on the world.
To Trump, who’s dubbed himself “Tariff Man,” import duties are magical—an instrument to achieve grand strategic goals and also to score tactical wins against adversaries and even partners. If he had his way, the US would hark back to a 19th century Gilded Age model of small government funded largely by tariffs rather than income taxes in which American barons of industry—the Elon Musks of their time—built vast wealth thanks to protectionism and the privilege of limited competition.
The details matter, though. Yes, Trump has threatened tariffs of 60% or more on goods from China and a universal 10%-to-20% levy on imports from all countries. But those vague campaign promises still need to be fleshed out and rolled out.
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Which means it will be a while before we know the answers to some key questions: Will the full 60% rate on China hit all imports? Or, as some economists have predicted, apply only to smaller symbolic sets of goods? Will Trump be more interested in wielding tariffs as a negotiating tool, as he did during his first term? Or will duties become a more permanent fixture, raising revenue to offset the tax cuts he’s promised? If it’s the latter, he may have to enlist Congress to write legislation to allow his campaign pledges to become reality.
In a highly disciplined White House in which the president follows a predictable path, those might be easy questions to answer. But that’s not how Trump operates. And even if his advisers are more disciplined, differences are already appearing among potential cabinet picks over what Trump’s tariff threats even mean.
Robert Lighthizer, who’s a strong candidate to regain his previous post as US trade representative but is hoping for an even bigger cabinet post to implement his protectionist vision, is a true believer in tariffs. He argues that America’s major economic mistake in history was in lowering barriers to imports over time and wants to see a balancing of US trade with the rest of the world. He’d see a return to higher permanent duties as a worthy legacy for both himself and Trump.
Yet other members of Trump’s inner circle have already described tariffs as a temporary tool to extract concessions from other countries—among them John Paulson and Scott Bessent, both billionaire financiers maneuvering to become Treasury secretary.
While Trump loves tariffs, he’s been less enthusiastic about the national security arguments for limiting trade than his advisers, many of whom see corralling China as the urgent task of our times. He’d be happy to have China buy more stuff from the US or Chinese manufacturers build factories in the US.
In a February 2020 thread on Twitter, he derided members of his former administration for invoking the “always used National Security excuse” in attempting to block the sale of jet engines to China. “I want to make it EASY to do business with the United States, not difficult,” he wrote. “THE UNITED STATES IS OPEN FOR BUSINESS!”
Trump has waved off economists’ warnings that his tariffs might bring a resurgence in inflation and slower growth. Still, after an election in which voter anger about high prices was a major theme, proceeding carefully would make sense given that tariffs will raise prices for households. In his first presidency, Trump was also mindful of how markets reacted to his pronouncements and sometimes adjusted course.
His administration also granted tariff exemptions to a large number of US companies that complained the duties posed a significant risk to their business. In August 2019, Tim Cook, Apple Inc.’s chief executive officer, flew across the country to plead his case with the president over dinner at Trump’s golf club in Bedminster, New Jersey. Cook’s argument was simple: How could Apple compete against South Korean rival Samsung Electronics Co. if the government was going to make the company’s products, many of which are assembled in China, more expensive? “I thought he made a very compelling argument,” Trump told reporters the next day.
This time around there’s one billionaire businessman in particular who’d like to have a say on Trump’s trade policies. Elon Musk, who spent at least $130 million of his own money to help Trump get reelected, has extensive business interests in China that could become a target for retaliation if Trump ramped up tariffs.
Tesla Inc. makes and sells a lot of electric vehicles in China and has big expansion plans awaiting Beijing’s approval. The company is building a “Megapack” battery factory outside Shanghai and wants to roll out its full driver assistance package to Chinese Tesla owners, which so far has received only tentative approval from Beijing.
Musk has spent even longer currying favor with China’s Communist leadership than he has wooing Trump. That makes him a potential peacemaker. Then again, he also could try to bend Trump’s China policies to his advantage, and it’s easy to imagine Trump siding with Musk over a hawkish secretary of state or national security adviser on China.
What does that all mean for Trump’s beloved tariffs?
There’s a good chance they’ll be calibrated. That might mean a 60% tariff on Chinese imports that would apply only to certain goods, which could lead to another round of supply chain shifting or even negotiations between Washington and Beijing. Beyond any universal tariffs, new duties on European shipments also look likely, perhaps with an eye toward a deal in which European Union countries agree to buy more American soybeans and liquefied natural gas, as they did in 2018, or maybe this time also Teslas.
An update of the United States–Mexico–Canada Agreement, the rebranded Nafta, seems inevitable given Trump’s campaign rhetoric. “Upon taking office, I will formally notify Mexico and Canada of my intention to invoke the six-year renegotiation provision of the USMCA that I put in,” he said during a speech at the Detroit Economic Club in October. Talks would deal with issues such as Chinese businesses building plants in Mexico as a way to sidestep US tariffs and the presence of Chinese auto parts in the cross-border EV supply chain. (The latter is also a topic of interest for Musk, who’s announced plans to set up a factory near Monterrey, though he put them on hold earlier this year ahead of the US election.)
Businesses and investors should brace for high drama, maximalist economic threats and lots of angst. But don’t despair. The global economy survived Trump 1.0. It may be sufficiently recovered from the effects of the pandemic to endure whatever punishment Tariff Man metes out next. Most important, perhaps, CEOs and policymakers around the world are better prepared to deal with Trump and the chaos that comes with him this time around.
(Corrects date of Tim Cook’s meeting with Donald Trump in the 11th paragraph.)
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