Trump avoids carrying out his tariff threats in the first hours in the White House | International
Strong hand against immigration and green policies, but little news about his repeated trade threats. In his first hours in the White House, Donald Trump has avoided any express mention of the tariffs with which he has threatened half the world and which threaten to turn world trade upside down again. No trace of them, for now, in the decrees with which he inaugurated his second era as president. Although with some indications, more or less explicit, of what direction it may point in the coming weeks: the 25% tax on its two North American neighbors, Mexico and Canada – with whom they are united by a free trade agreement renegotiated by work and grace of Trump himself—is now entering the ultimatum phase. Presidents can issue tariff orders without congressional approval.
This Monday, Trump declared two national emergencies: one on the southern border, with which he intends to stop immigration, and another in energy, with which he wants to apply steroids to his already buoyant oil and gas production. Not so the economic one, which would have enabled the immediate implementation of tariffs, sticking for the moment to a memorandum that orders federal agencies to study the United States’ trade relations with China, Canada and Mexico. “In a scripted inaugural speech, Trump’s mentions of tariffs have been limited,” notes Paul Donovan, chief economist at Swiss investment bank UBS, in an express report for clients. However, adds Tom Orlik, chief economist at Bloomberg Economics, “just because the tariffs have been postponed does not mean that they are going to be dropped.”
“It remains to be seen, but what these documents suggest is a more measured approach (in trade policy),” writes Chris Turner, head of global market analysis at Dutch bank ING. “Trump is a wrecking ball impossible to predict which direction he will take,” graphically points out Dominic Meagher, chief economist of the think tank John Curtin Centre. The only thing clear, based on what happened on Monday, is that it will take longer than expected.
His presumed openness to negotiate, which contrasts with the intransigence shown in the campaign, is particularly evident in the case of China, a country that he had threatened with linear tariffs of up to 60% on its products. In the first reports circulating in the new US Administration, Beijing appears to move from the immediate target of tariffs to —only— subject of an investigation for “unfair practices.” With Trump’s promise, furthermore, to debate it soon with his Chinese counterpart, Xi Jinping.
“That he has not yet taken the lead in China means that (Beijing) still has time to persuade him.” Although with many other motivations, the recent presidential extension of 75 days to avoid the blackout of the social network TikTok—also Chinese—could well be framed in that same attempt, still incipient, at appeasement with the Asian giant. The main beneficiaries of Trump’s prudence – which in principle contradicts the hard-line comments on the Asian giant by Scott Bessent, the candidate chosen for the position of Treasury Secretary – are Chinese securities.
The dollar as a backdrop
Trump’s mere renunciation of imposing tariffs on day one of his Administration has had an echo in the financial markets. After a streak of strong increases in its exchange rate against the main international currencies since the November elections, the dollar slowed down this Monday, moving slightly away from parity with the euro. Had it taken the step with a first round of tariffs this Monday, it is most likely that the greenback would have followed the opposite path: more trade barriers are always synonymous with more inflation and, therefore, also with higher interest rates. The perfect breeding ground for a currency to appreciate.
The careful approach to trade policy helped calm traders, who had been buying dollars at a breakneck pace, and allowed other currencies to rise. But at night, in the Oval Office of the White House, Trump again inoculated the fever to buy greenbacks with his ultimatum to Mexico and Canada.
On Monday morning, S&P 500 futures rose and Treasury yields fell, but the momentum lost steam overnight after Trump threatened to impose 25% tariffs on Canada and Mexico on February 1 : His threat made the dollar rise. The reign of the US currency seems assured in the short and medium term, despite Trump’s changing priorities in just 12 hours of inauguration day. “The last 24 hours are showing that there are going to be a lot of changes that we all have to digest,” said Mary Erdoes, executive director of wealth management at JPMorgan.
The Republican magnate himself is, in reality, one of the greatest interests in the weakening of his country’s currency, to make its exports more competitive and return its industry to its lost glory, according to him. “A weak dollar is Trump’s obsession,” writes Zouhoure Bousbih of the Ostrum fund manager. Exactly the opposite of what has happened until now, with a strengthening that “shows similarities” with another era: that of Ronald Reagan’s first term, in the early 1980s.
“Its destabilizing power is accentuated due to the significant deterioration of the net international investment position of the United States. If confidence in fiscal and monetary conditions is eroded, capital outflows could create dislocations in financial markets,” warns Bousbih. “It’s a scenario that has never happened, but who knows… The decline in dollar (external) reserves in favor of gold could also have a significant impact on US Treasury bond markets and ultimately , the dollar.” The markets, in short, as a potential containment dam against Trump’s adventures. Four frenetic years on all economic fronts.
Under the rubric of America First Trade Policy, which will be announced shortly, the transition team of the Republican Administration has drafted a broad trade memorandum that does not contemplate, in principle, the imposition of new tariffs, but rather gives instructions to the agencies federal agencies to evaluate trade relations with Mexico, Canada and China. The Republican president promised in November tariffs of 10% on world imports, 60% on Chinese products and a 25% surcharge on the import of Canadian and Mexican products. The memo specifically directs the agencies to evaluate Beijing’s compliance with its 2020 trade agreement with the United States, as well as a 2026 review of the United States-Mexico-Canada Agreement (USMCA).
