Trump said the zero-for-zero tariffs on industrial goods that EU is offering is not good enough.
“They’re screwing us on trade,” Trump said.
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China and US Trade War Escalates
- After China’s retaliation for 34% tariffs, Trump is saying he will add an additional 50% Tariff to China if they don’t take back their additional Tariff by tomorrow 12 pm. This would take the additional tariff rate to 104% for China
- China later in the day said they will not bow to Trump’s terms.
Assessment:
- U.S. GDP (2024): ~$29.18 trillion
- U.S. exports to China (2024): $143.55 billion → assuming -50% in exports would mean a $71.77B GDP impact (0.25% of GDP)
- U.S. imports from China (2024): $462.62 billion → assuming -65% imports and an 80% additional cost (assuming only some substitution), would be total a headwind of $69.39 B (0.23% of GDP)
- Using an economic multiplier of 1.5 - 2 (which is high) would mean a total impact of 211.74 - 282.32 (0.72% - 0.97% of GDP)
- Assuming 50% of prices pass between consumers/businesses, would mean PCE inflation could increase by 0.92%, and impact profits by 5.28%
Assuming these very bad assumptions, the total impact of the latest Trump threat to China would be 0.9% PCE inflation, and ~0.7-1% impact on GDP from the China situation alone, but obviously, there will be consequences beyond this analysis that are very difficult to quantify: supply chain disruptions, companies delaying investments and spending, additional cost for building new manufacturing, slower productivity and innovation, disruption in Yuan/dollar exchange rates, additional geopolitical issues, etc
I will continue to search for research that could give some glimpses of the possible consequences of a total trade war.
Other developments during the day indicate Trump is after making deals, but only the ones he thinks are fair making the bar high for negotiating nations.
- Trump is rejecting the European Union’s offer of “zero-for-zero” tariffs with the U.S. for industrial goods.
- Trump has asked his administration to start negotiations with the Japanese government, Treasury Secretary Scott Bessent said Japan could get priority due to speed.
- More than 50 countries have reached out to the White House to negotiate on tariffs, Kevin Hassett, the White House’s national economic council director, said on Fox News on Monday.
Trump said there may be negotiations for some countries’ tariffs while others’ would remain “permanent,” telling reporters, “We’re going to get fair deals and good deals” with foreign countries—”and if we don’t, we’ll have nothing to do with them.”
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Trump said a deal with Korea could be coming, and that China wants a deal, they don’t know how to start it, but that the call will come
As reference Korea is the 7th country the US imports (4% imports), with exports to Korea $65.5 billion, imports from Korea at $131.5 billion , and trade deficit of $66.0 billion in 2024
- Apparently, the Korean president said they would not band together with China and Japan to counter US tariffs (as reported yesterday Japan is also negotiating)
Trump also says they are already dealing with many other countries - Trump is looking for deals that go beyond the trade tariffs these other countries have in place, as his goal is to reduce the trade deficits
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I worked a bit on this topic today using deep research mostly, I found some interesting points:
EU ($235 B deficit), China ($295 B Deficit) and Japan (68.5$ B deficit) (excluded Mexico and Canada because their agreement USMCA is currently exempting them on most imports) have indeed considerable non-tariffs and trade barriers, which is limiting exports to their countries in important industries.
More Details
EU
- Agricultural restrictions: Strict bans and regulations on hormone-treated beef, genetically modified crops, and ractopamine pork severely limit U.S. farm exports.
- Regulatory and technical barriers: EU-specific product standards (e.g. CE marking, REACH chemical rules) impose high compliance costs, especially in autos, chemicals, and medical devices.
- Digital and services discrimination: Data privacy rules (GDPR), digital services taxes, and audiovisual content quotas disproportionately burden U.S. tech and media firms.
China
- State-led industrial policy: Massive subsidies, forced technology transfers, and market access restrictions give Chinese firms unfair advantages in manufacturing, energy, and tech sectors.
- Internet and digital barriers: U.S. digital platforms are blocked (e.g., Google, Facebook), and data localization laws require partnerships with Chinese firms, limiting service exports.
- Weak intellectual property enforcement: Rampant piracy, counterfeiting, and state-linked cyber-theft of U.S. trade secrets continue despite legal reforms.
Japan
- Agricultural import controls: High tariffs and restrictive quota systems for rice, beef, pork, and dairy limit market access, even after recent trade agreements.
- Structural business practices: Japan’s close-knit corporate alliances (known as keiretsu), limited retail access, and consumer preferences make it hard for American products to break in
- Product standards and testing: Unique and duplicative safety and quality requirements (e.g. for autos, building materials, and pharmaceuticals) raise export costs for U.S. firms.
However, I also found arguments that trade barriers are not the only cause of the huge trade deficits, and that structural economic forces, like savings rates, dollar being the reserva currency, consumption patterns, and currency strength, play a big role in shaping trade deficits, so in most cases macroeconomic fundamentals of each country are what has driven these imbalances.
IMF has a similar take on this related to deficits with China.
More Details
United States
- Low national savings rate: Chronic budget deficits and high household consumption drive the need for capital inflows, which result in trade deficits.
- Strong dollar and global reserve status: Keeps U.S. imports cheap and exports relatively expensive, reinforcing the imbalance.
- Global supply chain dependence: Offshoring of manufacturing and final assembly increases reliance on imports, particularly from China, Germany, and Japan.
European Union
- Excess savings in key economies: Germany and others run consistent current account surpluses due to high savings and modest investment.
- Export strength in high-value goods: Competitive manufacturing in autos, machinery, and chemicals aligns with U.S. demand patterns.
- Euro’s structural undervaluation: The common currency is weaker than a standalone German mark would be, boosting EU export competitiveness.
China
- High savings and investment surplus: Households, firms, and government all save heavily, creating a surplus that is exported via trade.
- Currency management and capital controls: Historically undervalued renminbi and limited financial openness suppressed import demand and supported exports.
- Export-led model and low consumption share: Domestic consumption remains weak (~38% of GDP), so U.S. goods face limited demand despite rising incomes.
Japan
- Persistent savings glut: Corporations and pension funds generate structural surpluses, which fuel capital outflows and support a trade surplus.
- Subdued domestic demand: Demographics and deflationary behavior limit consumption of foreign goods, including from the U.S.
- Global competitiveness in key sectors: High-quality autos and electronics dominate U.S. import categories, sustaining bilateral deficits.
Therefore, even if trade barriers were removed, it’s likely the U.S. would still run trade deficits (maybe to a lesser extent) until there are deeper structural changes.
Assessment: Based on recent developments, it does seem that President Trump is open to negotiations. However, the threshold for reaching agreements appears significantly higher than in the past “trade war”. He is no longer willing to accept minor offers (such as only tariff reductions) particularly from major trading partners. Instead, his focus seems to be on addressing what he perceives as deeper unfair practices from them, and is fixed in reduced trade deficits.
That said, even if these countries were to fully eliminate such barriers, it is unlikely that this alone would resolve the US persistent trade deficits. As noted earlier, these imbalances are in part largely driven by macroeconomic fundamentals (relative savings rates, investment patterns, and currency dynamics) rather than solely by trade policies. (Unfortunately, I have not yet found a credible source that quantifies what is macro and what is trade barriers)
And apparently in the case of the US, due to its huge fiscal deficits (and the private sector not being able to finance it all) and reserve current status (need to export dollars to the world), the US then needs to run a big trade deficit, also to finance its debt (gpt explanation) (Us imports goods → export dollars to the world → they buy Us debt with the savings)
The national savings rate of the US is indeed very low currently, which leaves the US very vulnerable to retaliation involving treasuries demand/supply.
Hence any reversal of this trend will mean imo that there is a significant increase risk for the fall of the US dollar hegemony ( I will dig deeper in other topics about this)
(Trump is indeed imposing 10% on all countries, even the ones with surpluses eg Brazil. But have not found any commentary focused only on that)
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EU countries set to approve first retaliation against U.S. tariffs
- European Commission proposed 25% tariffs on selected U.S. goods, includING motorcycles, poultry, fruit, wood, clothing, and dental floss.
- The total value of these imports was approximately 21 billion euros ($23 billion) last year, slightly less than the 26 billion euros of EU metals exports affected by the U.S. tariffs.
- The tariffs will be rolled out in stages: April 15, May 16, and December 1.
- Approval is expected during a committee vote among trade experts from all 27 EU member states
The U.S. tariff rate on Chinese imports now effectively totals 145%, a White House official confirmed to CNBC.
Trump’s latest executive order hikes tariffs on Beijing to 125% from 84%.
But that comes on top of a 20% fentanyl-related tariff that Trump previously imposed on China.
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Trump says semiconductors and electronics are not really excepted and they will be subject to 20%, and are under review for specific tariffs
- China has increased its tariff rate to 125%, and says they will not increase any more tariffs since at the current rate it makes no economic sense to import from the US
- China has now suspended exports of various critical minerals and magnets, necessary for auto components, semiconductors, and aerospace defense → China controls over 70/80% of the capacity to refine these metal, which could have significant consequences on the supply chain of this critical industries
Assessment: This situation is becoming increasingly confusing to model and the uncertainty created is most likely making it impossible for companies to plan their supply chains well currently, which could halt investments even further until better clarity
China with their warnings that they will not increase their tariffs anymore, could mean they could weaponize other areas that the US is vulnerable (will need additional research) similar to this rare metals policy, which could make a deal more likely.
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Kevin Hassett, U.S. National Economic Council Director said they are making “enormous progress” in trade negotiations with the EU (min 11:54).
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Trump said automakers need a “little bit of time” to move production to the United States.
“I’m looking at something to help car companies with it,” Trump said. “They’re switching to parts that were made in Canada, Mexico and other places, and they need a little bit of time, because they’re going to make them here.”
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Auto stocks rose following the report, with Volkswagen and Porsche rising 2.3% and 3.0% respectively.
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EU expects US tariffs to stay after the three-month pause ends as talks make little progress
- EU officials expect the 20% tariffs imposed by the U.S. on all imports from the bloc to stay in place after the three-month pause ends, people familiar with the matter said.
- According to the sources, the talks between EU’s trade chief, Maros Sefcovic and U.S. officials yesterday failed to bear fruits.
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Trump expects a trade deal with the EU and China
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Trump said he fully expects a trade deal with the EU before the expiry of the 90-day tariffs pause.
“There will be a trade 100%. Of course, there’ll be a trade deal. They want to make a deal very much, and I fully expect it, but it will be a fair deal,” he said.
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He also thinks they will make a good deal with China.
“I think we are going to make a very good deal with China,” Trump said
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Here is another video in which Trump is saying he thinks he will make a deal with China and gives 3-4 weeks as an estimate when pressed on that question. (Min 5:00) He also says he wants tariffs to go lower because otherwise people don’t buy anymore.
It does not appear to me that talks are progressed though and the presidents of both countries are talking to each other directly.
A bit later in the video he is talking about tariffs for pharmaceuticals and chips to bring them to the U.S. Are any specific tariffs for those categories in place right now, will they likely come and if yes how high will they be and what will their impact be?