Trump’s tariff gambit: reshaping global trade or stirring economic chaos?

Trump’s tariff gambit: reshaping global trade or stirring economic chaos?

U.S. President Donald Trump has embarked on what some say is a belligerent and dangerous mission to upend and reshape the international economic and competitive landscape through a series of aggressive tariff policy changes. His approach which is characterised by sudden shifts and strategic reversals, aims to bolster American manufacturing and fill government coffers.

Playing economic chess, however, is not without consequences – and predictably Trump’s first moves have prompted a swift backlash from trade partners, unsettled financial markets and strained diplomatic relations even further.

Here’s a breakdown of the tariffs currently in play or on the horizon as of 12 March 25:

A wave of retribution

Last week, the European Union (EU) fired back with retaliatory tariffs potentially reaching $28 billion on American goods, a direct response to Trump’s newly imposed levies on steel and aluminium imports. Meanwhile, Canada, one of the U.S.’s closest allies, unveiled plans to slap $20 billion in tariffs on U.S. products, signalling growing frustration with the administration’s trade tactics.

The tension with Canada reached a boiling point just a day earlier when Trump threatened to double tariffs on Canadian steel and aluminium. Although both sides temporarily stepped back from the brink, the episode underscores the volatility of Trump’s trade strategy.

Economic ripples and market jitters

The fallout from these policies is becoming increasingly visible. Global stock markets have taken a hit as investors grapple with uncertainty, and as we discuss below, American consumers are growing uneasy about potential price hikes.

As Trump doubles down on tariffs in his second term, the broader implications for the U.S. economy – and its standing in the world – are coming into sharper focus.

Trump’s doubling down on tariffs is a cornerstone of his economic policy and was supported by many of his voters with the expectation of boosting American jobs, protecting domestic industries, and pressuring foreign nations on issues like immigration and drug trafficking.

However, a range of unintended consequences have impacted his supporters – particularly everyday consumers, small business owners, and workers – catching them off guard.

Across the U.S., the cost of daily grocery items is climbing. Avocados are a staple largely imported from Mexico because the U.S. lacks the capacity to meet winter demand domestically. With tariffs on Mexican goods set at 25 per cent, prices could soar within weeks.

Meanwhile, U.S. retailers like Target are planning to raise fruit and vegetable prices.

For Trump voters who assumed these levies would hit foreign producers or corporate giants, the reality of pricier groceries and many discretionary items could come as an unwelcome shock.

Supply chain disruptions are also compounding the issue. Even consumers not directly buying avocados will be impacted. 

Companies like wholesale restaurant and food distributor Sysco, and restaurant chain Chipotle Mexican Grill, must either absorb the additional tariff costs on avocados or pass them on, and there are no viable U.S. substitutes for perishable goods like avocados.

And what of retailers or brands that cannot find American manufacturers willing or able to produce the products they sell, or the products on which they have built their brands, their followings, and their livelihoods? Potential shortages or reduced variety of products are likely and will challenge the notion that tariffs would seamlessly shift production onshore.

Perhaps most jarring for Trump’s voters will be the threat to jobs. While the President pitched tariffs as a boom for employment, many businesses will be hit by an increase in the cost of supplies, while manufacturers will be hit by an increase in the price of parts. 

Even the largest employers like Walmart aren’t immune. The retailing giant has been asking its Chinese suppliers to absorb the higher costs of Trump’s tariffs. But officials from China’s Ministry of Commerce who met with Walmart executives on Tuesday said, “If Walmart insists … then what awaits Walmart is not just talk.”.

As an aside, Walmart’s retail business in China is growing but remains less than three per cent of the company’s total sales in 2024. Sacrificing this business to save its much bigger U.S. business might initially make sense, but such a move could prove short-sighted; Trump and Xi Jinping will one day be out and yet Walmart will still want to grow in China. 

Returning stateside and Trump voters who expected tariffs to inspire a manufacturing renaissance, could instead confront job cuts in their own communities. 

One wonders whether they will feel betrayed by Trump and whether he will feel a decline in the loyalty of his supporters.

Businesses will either have to pass costs on and if their products are elastic, they will see a diminution in sales volume, adversely impacting operating margins and forcing some companies to lay off staff. Alternatively, they will absorb the costs and see a similar drop in margins and profitability. It seems, either way, businesses are about to experience a rough transition period.

Meanwhile for online retailers on platforms like Amazon, it’s entirely possible the tariffs favour Chinese competitors and undermine, rather than bolster, American entrepreneurs.

And let’s not forget small businesses were the pillar of Trump’s support base.

I recently mentioned on ABC radio, that the mercurial approach with which Trump deploys tariffs – imposing, withdrawing and reimposing – creates a volatile uncertainty under which businesses find it impossible to make key decisions such as capital investment, staffing, hiring, and expansion. 

That concern is hitting the road with many news outlets in the U.S. reporting businesses being paralysed. Some are delaying shipments, hoping for a policy reversal, others – those considering relocating to countries such a Vietnam or Thailand – fear Trump might target those nations next. This hesitation stalls investment and growth, a far cry from the decisive economic boost many supporters envisioned.

In pushing tariffs as a cure-all, Trump sold his supporters a vision of American resurgence. Yet, as higher prices, scarce goods, job risks, and small business struggles take hold, that vision is clashing with a less popular reality – one his voters didn’t sign up for.

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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.