Trump’s tariff expansion risks bigger economic blowback than other trade battles

Trump’s proposed tariffs on dozens of trading partners risk backfiring on the US economy at a time of rising geopolitical tensions, persistent inflation pressures, and slowing growth, warns Nigel Green, CEO of deVere Group.

Trump’s tariff expansion risks bigger economic blowback than other trade battles
The warning comes after the administration proposed tariffs of 10% to 12.5% on imports from dozens of economies, including some of America’s largest trading partners.

Unlike earlier tariff campaigns, which were largely focused on China, the latest measures reach much deeper into trading relationships that underpin vast sections of the US economy.

“The first tariff battles were sold as a strategic confrontation with China,” says Nigel Green.

“This proposal reaches across allies and major trading partners that are deeply integrated into the US economy. That’s why the risk of economic blowback is materially greater.

“The wider the net is cast, the greater the risk that the economic damage comes home.”

The economies affected collectively account for trillions of dollars in annual trade with the United States.

Canada and Mexico together account for more than a quarter of total US goods trade, while the European Union remains one of America’s largest export markets and a critical source of machinery, industrial goods, pharmaceuticals and components.

“US companies rely heavily on imports, components, machinery, industrial inputs and finished goods from many of the economies now facing tariffs,” says Nigel Green.

“A larger share of the cost is therefore likely to land on American businesses themselves.”

The deVere CEO argues that the timing makes the risks even greater.

“The global economy is already dealing with multiple sources of pressure.

“Energy markets remain vulnerable to geopolitical tensions involving Iran and the wider Middle East. Oil prices have become increasingly sensitive to developments in the region, creating renewed inflation risks.

“Inflation pressures have proven more persistent than many expected, while businesses and households continue to face elevated costs across financing, energy, insurance and labour.

“Against that backdrop, imposing broad new tariffs risks adding another layer of pressure onto companies and consumers.”

The warning follows proposals from the US Trade Representative to impose tariffs of at least 10% on imports from a broad range of trading partners following an investigation into forced labour practices, while a separate group of countries would face duties of 12.5%.

The deVere CEO says many investors are overlooking how different the economic backdrop is compared with previous tariff disputes.

“Businesses have already spent years restructuring supply chains, diversifying suppliers and relocating production in response to earlier rounds of tariffs.

“The easiest adjustments have already been made. Further changes become progressively more expensive, more complex and less efficient.”

He believes many companies now face a more difficult environment in which to absorb additional costs.

“If energy prices move higher because of conflict involving Iran and tariffs simultaneously increase the cost of imported goods and industrial inputs, American companies face a double squeeze.

“Margins come under pressure at the same time as consumers become more sensitive to higher prices.”

The implications extend beyond individual sectors.

He warns that businesses dependent on imported inputs, industrial supply chains, manufacturing components and cross-border trade could face the greatest pressure if the measures move forward, while renewed inflation risks could complicate the outlook for both equities and bonds.

The tariff proposals also arrive as the administration pursues a separate investigation into excess manufacturing capacity involving a number of major economies, raising the prospect of additional trade measures in strategically important sectors.

Investors should focus on the cumulative effect.

“Markets often focus on who is being targeted by tariffs.

“The more important question is who ultimately pays.

“History shows that a significant share of the burden frequently falls on domestic businesses and consumers.”

He concludes: “Washington is presenting these measures as a way to strengthen America’s economic position. But are they really?

“Previous trade battles were more concentrated. This one is broader, arrives at a more challenging economic moment, and touches more of the day-to-day operations of American companies.

“Investors shouldn’t assume this is a replay of previous tariff disputes. The target list is broader, the economic backdrop is more challenging and the potential consequences for US businesses are far greater.

“That’s why the risk of this becoming a serious self-inflicted wound is greater than before.”