By
Derek Hamilton
19 February 2025
Tariffs are once again in the headlines, with President Trump recently announcing tariffs on goods from China,
Canada,
and Mexico. The tariffs on Canada and Mexico were delayed for 30 days, after the leaders of those countries agreed to
send troops to their respective borders to help stem the flow of fentanyl and illegal migration. Several months ago,
we
laid out our expectations for the
potential enactment of tariffs. We generally continue to hold the same views. We
believe President Trump will eventually target specific countries and sectors, and we remain concerned about tariffs
on
China and Europe, in particular.
We believe there are three main reasons why President Trump is pushing for the implementation of tariffs.
- Growing the US manufacturing base: We believe a primary reason for tariffs is to
increase manufacturing in the US. As
you can see from the chart below, manufacturing employment fell by roughly 6 million jobs from the late 1990s
through
2010, as companies moved production overseas. Since then, manufacturing jobs have recovered about 20% of that
loss. Even
so, this administration seems to be focused on using tariffs to make it more profitable to produce goods in the
US.
- Reciprocity: Desire for a fair-trading environment has become an area of attention.
US officials could target
countries that assess tariff rates higher than what the US charges them for similar goods. Thus, raising tariffs
on a
particular country’s goods could be a tool to force that country to lower its tariff rates on US goods.
- Negotiation in non-trade matters: President Trump seems to view the threat of
tariffs as a way to force other
countries to change policies unrelated to foreign trade. The most recent example is the threat of higher tariffs
on
goods from Canada and Mexico above. We expect Trump to continue to use tariffs as a negotiating tool.
Of course, other reasons for tariffs have been discussed, including using them as a source of revenue. However, we
believe the reasons listed above are the primary drivers, and we would expect President Trump to continue to focus on
those countries and goods most impacted by these factors.
US manufacturing employment
Sources: Macquarie, Macrobond, US Bureau of Labor Statistics (BLS). Shaded areas represent
recessionary periods.
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