Based on everything we’ve seen and heard, there is no logic behind Donald Trump’s campaign to blow up the global trading economy. But he certainly has a flair for the dramatic in the way he’s going about it.
The day after his infamous “Liberation Day” on April 2, the stock markets tanked. Then, more worrisome to economists, the bond markets did so as well, with sellers dumping US Treasuries in a massive sell-off.
The President, who had earlier told Americans to suck it up and take his medicine, suddenly discovered he was prescribing the economic equivalent of beach. The reciprocal tariffs would be postponed for 90 days, he announced, to allow for negotiations with the more than 75 countries that had requested meetings.
The moment this news was posted on Truth Social the stock markets soared. Traders who were despondent one minute were elated the next. Almost everyone except the Chinese breathed a sigh of relief. All they got from the President was another tariff increase, to a crippling 145%, and a promise that he would be “gracious” if they came begging, hat in hand.
These latest developments underline the worst aspects of Donald Trump’s trade war: uncertainty. No one knows what comes next or what to do. As things now stand, Mr. Trump’s reciprocal tariff has been trimmed to 10% for most countries during the 90-day negotiation period. What happens after that is anyone’s guess.
If the whole process was clearly defined – rates, timing, affected countries – at least businesses would have a framework to work with. But as things stand, no one knows what to expect tomorrow. What will the final tariff be on China? Will Mr. Trump settle on 104%? 125%? 145%? 500%? What rates will be negotiated with other countries? How long will the process take?
That’s the dilemma facing the business community right now. The President’s avowed goal is the reindustrialization of what he sees as a hollowed-out America. Many people have questioned whether that’s either feasible or desirable. Do Americans really want to return to a factory-driven economy after having seen the country evolve into a technological giant? Do they really want to be sewing dresses or making footwear? Any economist will tell you that’s a gross misallocation of resources.
Even if reindustrialization is a desirable goal, it will take many years and trillions of investment dollars to accomplish it. Who wants to make those kinds of commitments in the chaotic environment we’re now experiencing? Four years from now there may be a new President with completely different priorities and a brand-new playbook.
Right now, many businesses are almost paralyzed. Each company faces its own set of challenges as it tries to cope with this turbulent new reality.
The immediate concern is China. At current levels (China raised its tariffs on US imports to 125% last week), trade between the world’s two largest economies will quickly grind to a halt. That creates massive problems for many American companies. Here are three examples.
Price at close April 2: US$223.89
Price at close April 11: US$198.15
Loss: 11.5%
Apple’s big problem is most of its iPhones (an estimated 80-90%), as well as other electronics like iPad, are manufactured in China, which now faces prohibitive tariffs of 145% on exports to the US. If that rate were allowed to stand, it would more than double the cost of iPhones produced in that country. Some economists say the retail price of an iPhone made in China and shipped to the US would be in the $3,500 range. That would put it beyond the reach of many consumers and cripple sales.
Somebody must have whispered this in the President’s ear because late Friday it was revealed that smartphones, computers, flatscreen TVs, and some other electronics would be exempt from the tariffs on Chinese imports. Interestingly, the announcement did not come from the White House but in the form of a bulletin posted by US Customs and Border Protection.
Prior to this news (which could change tomorrow) there had been suggestions that Apple should shift production elsewhere or even, as Mr. Trump desires, bring it to the US. Neither is as easy as it sounds.
Moving some or all production to another country (or countries) is like throwing darts at a moving target. Once all the negotiations are completed, who can predict which nations will fare best when it comes to exporting to the US? Apple has already moved some iPhone production to India, but until the tariff pause that country was facing a 26% hit – better than China, but not great.
Vietnam, which had become a favourite for companies seeking to diversify from Chinese factories, was looking at a 46% rate. Without certainty going forward, neither Apple nor anyone else is likely to commit to a move that could cost hundreds of millions.
As for shifting all production to America, economists say that’s a non-starter because of a shortage of skilled labour. Assembling iPhones is a complex task that, at least for now, can’t be done by robots, or uneducated workers making $2 an hour.
Bottom line: Unless the exemption is made permanent (or whatever passes for permanent in Mr. Trump’s mind) high tariffs on China would disrupt Apple’s finely tuned global supply chain, which relies on a network of suppliers, assemblers, and manufacturers in different countries.
Price at close April 2: US$370.89
Price at close April 11: US$353.86
Loss: 4.6%
Home Depot imports many of its products, from tools and hardware to building materials. Much of this comes from China. When tariffs are imposed on these imports, supply chains may be disrupted, and the cost of goods sold will increase. The result is higher retail prices.
The increased costs and potential for passing on higher prices could put pressure on Home Depot’s margins, especially if it faces resistance from customers or competitors. The company may be able to offset some of this pressure through operational efficiency, but tariffs typically reduce profitability in the short term.
If tariff levels are changed frequently, it will make it harder for the company to plan its pricing and inventory strategy effectively.
Bottom line: The effect of tariffs on Home Depot largely depends on the types of goods impacted by the tariffs, the rate applied to the exporting country, HD’s ability to adjust its supply chain, and how it manages to pass on the increased costs to consumers without hurting demand. Tariffs will drive up costs and reduce margins, so Home Depot will need to adapt to retain market share. That may mean finding new suppliers in lower tariff countries, raising prices strategically, and focusing on cost-cutting measures.
Price at close April 2: US$10.15
Price at close April 11: US$9.33
Loss: 8.1%
Ford’s problem (and that of other US automakers) is different. Tariffs on China aren’t the major concern. What keeps management up at night is Washington’s 25% tariffs on steel and aluminum and the 25% cross-border tariff on vehicles that don’t comply with the strict manufacturing requirements of the USMCA trade agreement.
Tariffs on steel and aluminum imports increases the cost of producing vehicles. These materials are essential for car manufacturing, including the body frame and various other components. Many auto parts such as engines, electronics, and specialized components are sourced from abroad. Increased costs for these components due to tariffs can raise the overall production costs.
There has been widespread speculation that the result will be an increase in the price of new motor vehicles of between $3,000 and $10,000. Should that happen, the price of used cars would almost certainly rise as well, which is likely to depress demand. That would lead to the disappearance of some models and a scramble for market share.
Tariffs are not only a concern for the US and Canadian markets, but they can also affect Ford’s exports. If Ford (or other North America automakers) exports vehicles or components to countries that impose retaliatory tariffs in response to the US, this could make Ford’s products less competitive in those markets. This is particularly relevant as Ford has a significant global presence, and many of its vehicles are produced in one country but sold in others.
Bottom line: Tariffs can have a significant impact on Ford, especially in terms of increased production costs, higher vehicle prices, and potential disruptions to global supply chains. While Ford may be able to adjust by shifting production, changing sourcing strategies, or passing costs onto consumers, the overall effect of tariffs will depend on the specific materials and markets involved. The impact could be especially pronounced for Ford as it navigates the transition to electric vehicles and responds to competitive pressures in the global automotive market.
As these examples show, this story is far from over. Hopefully, the 90-day pause will end up bringing clarity – but with Mr. Trump at the controls, don’t bet on it.
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