US President Donald Trump's announcement that he would impose tariffs on goods from Canada, Mexico and China has shaken international markets and deepened fears of a full-scale trade war.
As a result of this announcement, global stock markets have fallen, and investors are preparing for economic instability that could threaten corporate profits and slow global growth.
Trump claims that they customs duties necessary to combat illegal immigration and drug trafficking.
"Gang members, smugglers, human traffickers and all kinds of illegal drugs are crossing our borders and entering our communities," he said on February 1.
A day later, he confirmed plans to impose tariffs on products from European Union (EU) countries, and hinted that a deal could be reached with the United Kingdom (UK).
However, proposed US tariffs on Canadian and Mexican goods are postponed on Monday, February 3, just a day before they were due to come into force, after emergency talks during which both countries agreed to tighten controls on their borders.
- New US tariffs on Chinese products come into effect, Beijing retaliates with countermeasures
- Trump imposes tariffs on Canada, Mexico and China, countermeasures announced
- Canadian fans boo US national anthem after tariffs
Washing machines: Case study
Trump claims that tariffs benefit Americans because they bring in revenue from foreign companies.
On February 1, he said he would impose 25 percent tariffs on products from Canada and Mexico, and that he would increase existing tariffs on Chinese goods by an additional 10 percent.
Canada announced reciprocal measures, and Mexico also threatened, but did not implement any measures.
All three countries reached an agreement on the suspension of customs duties for 30 days with the obligation to strengthen border controls.
As part of the agreement, Mexico agreed to deploy 10.000 National Guard troops along its border.
At the same time, shortly after US tariffs of an additional 4 percent on imports from China went into effect on Tuesday, February 10, Beijing retaliated with countermeasures on various American products, including a 15 percent tariff on coal and a 10 percent tariff on crude oil.
Experts warn that tariffs often end up burdening domestic consumers and businesses.
An example of this is the tariff on washing machines that Trump imposed in 2018, with the aim of protecting American manufacturers from cheap imports.
Research led by economists Aaron B. Flan, Ali Hortaxu, and Felix Tintelnot found that this policy increased the price of washing machines in the US by 12 percent, as both foreign and domestic manufacturers raised prices.
The study estimates that the 1.800 new jobs created were largely offset by higher costs for customers.
"Although some jobs were created, consumers paid a very high price."
"It wasn't a good deal for them," Felix Tintelnot, a professor at Duke University in the US and co-author of the study, tells BBC Mundo.
Ultimately, "the cost of the trade conflict is borne by consumers," says Inga Fechner, senior economist for global trade at ING Bank in Germany.
'It's not an isolated case'
The duty on washing machines was not an isolated case.
During Trump's first term, multiple studies showed that tariffs increased costs for American consumers.
As imported products became more expensive, companies passed on those costs, partially or completely, to customers in the US, further fueling inflation.
"Study after study shows that the tariffs imposed since 2017 have been passed on entirely to American buyers," write economists Kimberly Klossing and Mary Lovely of the Peterson Institute for International Economics, a progressive American think tank.
The conservative American think tank Tax Foundation also pointed to the economic damage caused by tariffs.
"They have had an overall negative impact on the country's economy," writes Erica York, vice president for federal tax policy at the center.
"Tariffs have increased prices and reduced production and employment," he points out.
However, Trump allies, such as trade adviser Peter Navarro, dispute these findings.
"There was no inflation because of the tariffs," Navarro claimed, although he did not provide any data to support that statement.
- What is BRICS, which is also being talked about in Serbia
- Five questions about the Chinese economy
- The West claims China is producing too much, its workers disagree
Barbie price hike?
Toy giant Mattel says it may raise pricesBarbie doll in the US to offset the impact of tariffs imposed on China.
Slightly less than 40 percent of the company's production is based in China.
In addition to potential price increases, the manufacturer says it could also change supply chains.
'Violation of trade agreements'
In addition to the economic impact, Trump's tariffs on products from Canada and Mexico pose a challenge to decades of free trade agreements.
This is compared to implementing tariff breaks with the idea of reaching a trade agreement, explains Valeria Moy, general director of the Mexican think tank IMCO.
"It's like saying, 'I don't care,'" she says.
Moj points out that Mexico, the US's largest trading partner, sends more than 80 percent of its exports to America.
Many American companies rely on Mexican manufacturing, and losing access to competitive import prices could seriously disrupt supply chains.
"Mexico is probably the economy most affected by US trade protectionism," Kimberly Sperfechter, Latin America economist at the consulting firm, wrote in a mid-January report. Capital economics.
"However, the degree of vulnerability of individual sectors in the Mexican economy varies significantly."
She believes Mexico still has some negotiating power.
"Probably the biggest asset Mexico can use is political, especially when it comes to migration."
"The US relies heavily on Mexico for help in stemming the flow of migrants and illegal drugs across the southern border."
"Cooperation in this area could be an effective tool for negotiations," she says.
History repeats itself?
Trump has used tariffs as a means of pressure before.
In 2018, he imposed tariffs of 25 percent on steel and 10 percent on aluminum, which rattled businesses and raised prices for consumers.
Socitl Pimienta, a professor of political science at the Technological Institute of Monterrey, Mexico, points out that research on the impact of these tariffs has shown that the prices of cars, washing machines and blenders in the US have increased between eight and 20 percent.
Another study estimates that tariff increases cost the average American household about $1.200 per year.
Trump also threatened Mexico with a five percent tariff if it did not crack down on migration, although the measure was never implemented.
However, the threat itself has created uncertainty and speculation about prices.
"The end consumer in the US would be affected," says Pimienta.
Trump's 'real intentions'
Experts say it is difficult to determine Trump's exact goals, but there are some clues.
"One thing is clear: I think this measure is designed to increase tax revenues in an attempt to solve the huge US fiscal deficit," said Andre Perfeito, a Brazilian economist with decades of experience working in financial markets.
Perfeito explains that taxes increase the price of imported products, which in theory should benefit domestic production.
However, he notes that domestic firms will likely respond by raising prices to achieve higher margins.
A study on the impact of tariffs on washing machines showed that this is exactly what happened, as both foreign and domestic manufacturers raised prices.
"Tariffs only make sense if they are applied in a strategic, sector-specific manner with significant flexibility," says Perfeito.
He warns that tariffs carry a "high risk of failure," but that their impact "has yet to be seen."
"If short-term damage, such as inflation, remains under control and Trump manages to generate additional revenue, we could see some fiscal progress."
"Since the approach has never been implemented to this extent, no one can say for sure that it won't work," he says.
Additional reporting: Luis Barucho
- Trump is off to a strong start: He has already signed dozens of executive orders - what is that?
- What Trump 2.0 could mean for the world
- What is USAID and why is Trump reportedly determined to shut it down?
BBC is in Serbian from now on and on YouTube, follow us HERE.
Follow us on Facebook, Twitter, Instagram i Viber. If you have a topic suggestion for us, please contact bbcnasrpskom@bbc.co.uk
Bonus video:
