new York
Cnn
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President Donald Trump is about to hit the three largest American trade partners with radical prices, much more aggressive use of his favorite economic weapon than everything he did during his first mandate.
THE Imminent import taxes In Mexico, Canada and China will be a major test for Trump’s unorthodox use, which he described as “The greatest thing ever invented.”
It is a huge bet, undoubtedly a bigger than any economic policy that Trump adopted during his four years and more in the White House. And this strategy has the potential to upset the thing that many voters care the most: the economy and The cost of living.
But Trump’s prices represent a great risk: they could turn against him, raise consumer prices already high at the grocery store, rock the trembling stock market or kill jobs in a full -fledged trade war.
“He is perhaps the biggest scorer to date,” Mary Lovely told CNN Mary Lovely, told CNN Mary Lovely Fellow at the Peterson Institute for International Economics. “It’s a huge bet. It is a recipe to slow the economy and increase inflation. »»
The Wall Street Journal went further, publishing a Scathing op-ed Saturday entitled: “The stupidest trade war in history”.
OP-ED argued that Trump’s justification for “economic assault” against Canada and Mexico “makes no sense” and warned that the strategy could end with a disaster.
Trump considers prices as an almost magical negotiation tool, a powerful means of obtaining a lever effect on friends and allies.
He argued that prices are necessary to respond to the main concerns, including trade deficit, illegal immigration and illicit drug flow.
Trump and his supporters often emphasize that the prices during his first mandate did not cause problematic inflation.
But these are different prices, applied in a very different world at a very different moment.
Trump triggered prices on $ 1.4 billion of imported goods on Saturday. It is more than the triple of $ 380 billion in foreign products that were struck by prices during Trump’s first mandate, according to estimates by the Foundation tax.
During Trump’s first term, inflation was not really a problem.
Today, life is so much more expensive, at the grocery store, at the car dealer and almost everywhere else. Consumers, investors and federal reserve managers are much more sensitive to price increases, even moderate now.
The White House argued that Trump’s prices would not have problems for the American economy, but some economists and commercial experts are deeply concerned because these samples target the neighbors closest to America, Canada and Mexico.
During his first mandate, Trump threatened, but never reached the trigger, the prices on Canada and Mexico. Such movements have been spoken by his advisers.
Stronging Canada and Mexico with general prices could cause chaos of the supply chain in the closely interconnected North American economy, which causes higher prices.
“To impose prices that are up to 25% on our nearest business partners is likely to decimate North American economic power, on which the United States is based. Why would you like Burn your own house? said Christine McDaniel, former business manager for the administration of President George W. Bush, who is now a principal researcher at the George Mason University.
This is particularly true in the automotive industry, where parts often cross the border several times before the arrival of a car from the dealer. Wolfe Research estimated that the price of a typical car sold in the United States could increase by $ 3,000 due to prices.
The petroleum industry has pleaded in the White House to protect the crude from prices because Canada is the largest foreign source of oil. Analysts have warned that prices could increase petrol prices in the big lakes, Midwest and the Rockies. This is why the White House has reduced Canadian energy prices to 10%, instead of the 25%.
The prices of the grocery store are a major point of pain that weighed on voters in the last elections. But Mexico is America The greatest foreign source of fruits and vegetablesWhile Canada is n ° 1 in cereals, cattle / meats and sugar / tropical products.
Lovely said that it was “very” confident that the American prices will cause higher prices for consumers – especially in the grocery store and on building materials. She noted that the changes in the value of the currencies could blunt some, but not all, the impact of prices.
“He must increase prices,” said Lovely. “There is no way that you can simply take this tax and suddenly, POOF, this burden disappears – even if that’s what he wants to convince us.”
Price increases on prices will not occur immediately. Instead, they could be played in a drop -on -drow -drop in drop by drop through complex supply chains.
“It is not as if everyone would mark their shelves tomorrow, then it’s done,” said Lovely. “You will see a slow pass at prices. One week, it will be at the grocery store, another, he will be at Home Depot. »»
The problem is that higher contribution costs, as well as reprisal rates, could affect the expenses of companies and consumers – and alarm investors and Fed officials.
Trump’s prices on Mexico, Canada and China, as well as reprisal rates from these countries, could eliminate 1.5 point percentage from the growth of US raw indoor products (GDP) in 2025 and 2.1 other Percentage points in 2026, according to estimates by EY’s chief economist, Gregory Daco.
“Stealing pricing increases against American trade partners could create a stagflationist shock – a negative economic blow combined with an inflationary impulse – while also triggering Daco Daco in a report on Friday.
A big joker is the way the Fed will react.
Although the president of the FED, Jerome Powell and his colleagues, can be ready to neglect a single blow at prices, the prices could force the American central bank to delay decreases in interest rates.
The real key to Fed officials will be how prices modify consumers’ psychology, if necessary.
“If prices increase the expectations of inflation, the Fed may feel forced to maintain restrictive rates for longer, the tightening of financial conditions and weighing on growth dynamics,” said Daco in the new report.
Of course, it is still too early to say exactly how it will all go. There are many variables, including the reaction of supply chains and complex consumers.
It is quite possible that a last minute agreement is concluded before the direct debits do any damage.
However, rotating the prices of this wide range of goods is a risky strategy, the one that Trump did not even try during his first mandate.
“The administration plays with fire,” said Joe Brusuelas, chief economist of RSM.