According to estimates commissioned by the nipponese press agency Nikkei Asia, customs tariffs proposed by President-elect Donald Trump could reduce the gross home product of the United States in 2027 by 1.1% through their impact on prices and employment in the US.
Nikkei Asia commissioned an examination of the impact of the proposed duties on the Institute of Developing Economics at the nipponese abroad Trade Organisation (GRS) and added its own analysis. The survey is based on the tariff plans announced by Trump on 25 November. These include 25% of the customs work on products from Mexico and Canada – partners of the tripartite free trade agreement – and an additional 10% charge on Chinese goods (now already covered by the prohibitive duties).
The Institute expects that in 2027 US GDP will be 1.1% lower than without tariff increases, with the mining and agricultural sectors falling by up to 1.5%. The United States imports many goods from its neighbours, including products specified as tomatoes and avocados. Higher prices for these products, which are subject to the proposed duties, will consequence in little consumer interest and thus reduce employment opportunities.
If duties are implemented, ‘there are likely to be cases where prices will increase for consumers“ in an interview with CNBC, Walmart’s financial director, John Rainey, stated.
‘The American-focused high-duty policy of Trump is likely to harm the United States. This can besides hamper the growth of the global economy as a whole” said Ikumo Isono of the GRS
The introduction of additional duties on Chinese goods will lead to an increase in their prices. However, in the case of US imports from China, many imported goods cannot easy be procured elsewhere. For example, 77.8% of full imports of natural graphite and permanent magnets, utilized in batteries for electrical vehicles, and 65.1% of imports of lithium-ion batteries for electrical vehicles in the US are from China.
According to the GRS, US duties can reduce China's GDP by no more than 0.3%. This is due to the fact that Chinese companies in many cases are and will stay key suppliers. For example, nipponese company Ricoh announced that it plans to decision office equipment production for the US from China to Thailand. However, this does not mean that production in Thailand will not depend on Chinese supplies.
Geopolitical tensions that translate into trade turbulence can be utilized for Global South countries. There they frequently place production and assembly of Chinese forms, as well as abroad ones, which presently mainly produce/asset in China. However, this applies primarily to the production of clothing, footwear, office accessories.
The advanced duties imposed on China by Trump's first administration helped increase imports into the US from Mexico and Canada. Higher duties upon Trump's return to office may reduce Mexico's GDP by 3.8% in 2027 and Canada by 1.2%. Motorization-related production will endure by 10.7% in Mexico and 10.2% in Canada.
Meanwhile, many nipponese companies have established production bases in Mexico or Canada, assuming it is protected areas under the US-Mexico-Canada trade agreement. The introduction by the US of customs duties on goods from Mexico and Canada will consequence in a cooling of plans for current and future investors wishing to place their factories or logistics centres there. The authorities of specified companies as Daikin and Sumitomo Electric, which have already built their plants in Mexico, are waiting for the president-elect's concrete decisions, and which are not as certain as six months ago.
U.S. marketplace observers are divided on the imagination of the future of trade relations in the region. Many, however, presume that Donald Trump's declarations are commercial, tender actions to force his neighbors to submit. Trump wants more control over the emigration from Canada and Mexico. It wants to shift the burden of action to these countries, and it wants to win by clearly reducing the influx of illegal immigrants into the US. Mexican president Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau spoke to Trump after he threatened 25% of the duties. As reported after the meetings, key issues specified as immigration were discussed, and negotiations between the US and another countries were announced to be intensified.
Source: Nikkei Asia
Main illustration: Bruno Sikora
Leszek B. Glass
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