At Regan van Rooy, we usually concern ourselves with treaty shopping, transfer pricing, and tricky tax structuring – but every so often, the political circus throws out something so economically seismic that we simply must pay attention. Enter stage right: Donald J. Trump – President, once again – and his new round of Trump tariffs.
Yes, it’s official. As of this “Liberation Day”, President Trump has formally reimposed his protectionist agenda with a sweeping tariff programme that’s already sending shockwaves through global markets.
So what exactly are tariffs, why do they matter, and what does Tariff Man 2.0 mean for global trade and your business? Let’s break it down.
Tariffs 101 – A quick refresher
Tariffs are taxes imposed on imported goods. They serve a few main purposes:
- Protect domestic industry from cheaper foreign products
- Generate revenue for the government
- Punish or influence foreign countries through economic leverage
They come in two flavours:
- Ad valorem tariffs – a percentage of the item’s value (e.g., 10% on all TVs)
- Specific tariffs – a fixed amount per unit (e.g., $500 per car)
The effect? Imported products get more expensive. That sounds good for local producers, but it’s not always that simple – especially when global supply chains are so deeply interwoven.
A (very) brief history
Historically, tariffs were a major source of revenue before modern income taxes emerged. Over time, however, countries realised that open trade generally benefitted everyone. This led to the rise of multilateral trade agreements and the creation of institutions like the WTO, which encouraged tariff reduction and economic cooperation.
Fast forward to the 21st century, and we saw a major shift back towards economic nationalism with Trump’s first presidency. Between 2018 and 2020, the US launched a full-on trade war with China and selectively hit other countries with steel, aluminium, and tech-focused tariffs.
Now, the sequel has arrived.
Trump 2.0: Tariffs officially reloaded
Just when we thought we might be inching toward global trade peace, The Donald has taken out his economic sharpie again – this time to redraw the rules of global trade with all the subtlety of a wrecking ball in a fine china shop. Yes, the US has dramatically ramped up tariffs, and the consequences are already biting.
Not Just China – It’s a Global Roast
China may be the main course in this tariff buffet, but it’s not dining alone. The US has fired off new tariffs at a wide range of countries including EU members, Vietnam, South Africa, and even Lesotho (yes, Lesotho – the tiny mountain kingdom now caught in a global trade crossfire). Tariff rates vary, but the signal is clear: everyone’s a suspect.
Naturally, China has retaliated, and the US has counter-retaliated, and so the tit-for-tat spiral spins on. The global economy now resembles an awkward family reunion where everyone’s arguing over the bill and breaking the furniture.
Markets: Spooked and Sinking
Markets hate uncertainty and nothing screams uncertainty quite like arbitrary tariffs from the world’s largest economy. We’re seeing:
- Stock prices tumbling worldwide
- Bond yields rising, i.e., bond prices falling – bad news for pension pots and cautious savers
- Volatility soaring, as investors ask: what’s next, tariffs on sunshine?
The Three Perverse Principles of Trump’s Trade Theology
The new tariffs are not just aggressive, they’re underpinned by a rather eccentric economic worldview, here are the three concerning elements of the plan as we see it:
1. Fixating on Trade in Goods Only
The Donald seems to believe that only goods count in trade. Services, apparently, are invisible, perhaps because you can’t whack a “Made in China” sticker on a Zoom consultation. This leads to some bizarre conclusions. For instance, the US runs a large goods trade deficit with many countries, but once you include its dominant services exports, the overall balance of payments often swings into surplus. Not so unfair, after all. Yet the formula goes like this: find a goods trade deficit, ignore services, and slap on a tariff equal to half that deficit. Voilà! Economic justice, Trump-style.
2. One-Way Reciprocity
Under this approach, only the US may impose tariffs. If other countries dare to reciprocate – well, that’s just unfair. The world is thus expected to accept punishment politely, with no dessert.
3. Trading Up (or Down)
The US is overwhelmingly a services-led economy — around 80% of GDP. Manufacturing makes up about 18%, and agriculture plays such a small role it’s basically a rounding error. Yet tariffs aim to revive manufacturing by making imports costlier. Even if this works (a big if), it risks replacing higher-paying service sector jobs with lower-paying factory roles – a clear case of economic regression disguised as progress.
Supply Chains: Once Broken, Not So Easily
Let’s assume for a moment that tariffs succeed in re-shoring manufacturing to the US. Before that happens, global supply chains will have to break and rebuild – a messy and costly process. And once reformed, those supply chains will likely favour leaner, more experienced operators elsewhere. US greenfield projects will have to fight uphill, facing competitors who now build at lower cost, and faster.
So even if this grand plan works, it may result in less choice, higher prices, and fewer high-skilled jobs – the economic equivalent of winning a battle only to lose the war.
As trade tensions rise and markets wobble, we continue to monitor developments closely. If you’re concerned about how this might impact your business or investments, we’re here to help you navigate the madness.
Until then, Happy Liberation Day, or as the Economist has it “Ruination Day”.
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