During the election campaign, Donald Trump and his supporters announced high tariffs: 60% on imports from China, 10%, 20% or more on all other imports. There is now widespread discussion about whether this will actually happen or whether it was just electioneering bluster. The threat of higher tariffs may also serve as leverage to persuade trading partners to make concessions, Commerzbank’s Head of FX Research Ulrich Leuchtmann notes.
Trump administration to force partners to end subsidies
“Materially relevant concessions will most likely be unavoidable. What might these be? Let’s take a look at the arsenal of trade policy. Above all, we find: concessions by the US trade partners to end subsidies on the production of tradable goods, and quotas (i.e. upper quantity limits) for exports to the USA.”
“If, for example, an aircraft manufacturer in Europe receives government subsidies that enable it to offer its aircraft at a lower price than a US aircraft manufacturer, US airlines can purchase aircraft at a favorable price. If the subsidies are discontinued, the US airlines will have to pay more for the acquisition of their aircraft, will have to raise ticket prices as a result, and thus contribute a little to higher US inflation.”
“In market economies, the government has to issue licenses that are acquired by companies planning to send goods to the US. I think it is clear that this is quite similar to a tariff. The only difference is that the revenues go to the government of the exporting country, not to the US government. Otherwise, the effect is the same as with US import tariffs.”
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