Under President Trump’s second term, the administration’s trade strategy has expanded beyond its first-term approach, with former Commerce Secretary Wilbur Ross attributing this shift to improved control over Congress and a broader range of objectives.
The current administration’s trade strategy under President Trump‘s second term has significantly expanded beyond its first-term approach. Former Commerce Secretary Wilbur Ross attributes this shift to the administration’s improved control over Congress, allowing for a broader range of objectives, including using tariffs as a tool for diplomatic purposes and raising revenues to offset tax cuts.
The Trump administration's trade strategy focused on renegotiating existing trade agreements, imposing tariffs on imported goods, and promoting American-made products.
Key initiatives included the renegotiation of NAFTA (North American Free Trade Agreement) to create the USMCA (United States-Mexico-Canada Agreement), a 25% tariff on steel imports, and a 10% tariff on aluminum imports.
The administration also launched trade investigations into China's intellectual property practices and imposed tariffs on over $360 billion worth of Chinese goods.
Ross emphasizes that dealing with China is distinct due to its size, economic power, and historical relationship with the United States. The administration’s strategy involves isolating China and adopting a more punitive approach, which complicates negotiations and affects the outcome’s usefulness. Ross notes that both parties have appointed point persons for negotiations, but the lack of respect from the Chinese side creates an obstacle to achieving a constructive deal.
The US-China trade relationship is a complex and multifaceted issue.
The two countries have the largest trading partnership in the world, with over $700 billion in annual trade.
China is the US's largest supplier of goods, including electronics, textiles, and furniture.
In return, the US is China's largest export market.
However, trade tensions between the two nations have increased in recent years due to issues such as intellectual property theft, currency manipulation, and unfair trade practices.
Despite concerns about economic volatility and market turbulence, Ross doubts that the current tariffs will cause long-term harm to the U.S. economy. He attributes this to the fact that smaller countries like Canada and Mexico cannot afford a trade war with the United States, as the impact of tariffs on them is significantly lower than their own trade pain inflicted on us. The administration’s efforts to establish clear paths for other countries to reduce tariffs may ultimately lead to lower tariffs overall.
When it comes to semiconductors, Ross notes that industry executives are sounding more patriotic as they recognize the need to diversify suppliers. However, they also want to ensure that tariffs do not create loopholes for China. The Commerce Department’s detailed study and public hearings will help fine-tune the approach.
The semiconductor industry is heavily reliant on global supply chains, with many countries exporting raw materials and components.
The imposition of tariffs can disrupt these supply chains, increasing production costs and reducing competitiveness.
According to a study by the Semiconductor Industry Association (SIA), tariffs on semiconductors could increase prices by up to 20%, affecting industries such as electronics and automotive.
In 2018, the US imposed tariffs on Chinese imports, including semiconductors, which led to retaliatory measures from China.
The SIA estimates that these tariffs have cost the industry over $1 billion annually.
Ross advises business leaders and investors that while the initial shock from broadening tariffs was significant, clarity on how this strategy will unfold will eventually calm markets once a few deals are made with key players. He emphasizes the importance of passing tax bills to protect the economy from potential negatives associated with tariffs.
Ross concludes by highlighting the need for a long-term perspective in implementing President Trump‘s economic policy, which includes not just tariffs but also tax cuts and other measures. By focusing on this overall strategy, Ross believes that the administration can better address the challenges posed by trade policies.
