#MacroFriday: Trump sets the scene for his presidency

No, I had not planned to write about Trump this week, but his remarks on Monday left me with little choice.

Even before taking office, he’s already pointing fingers at the United States’ key external suppliers of goods. On Monday, Trump announced plans to impose a 25% tariff on all imports from Mexico and Canada, along with an additional 10% tariff on Chinese products, effective once he assumes office. He targeted the countries that account for the largest shares of imported goods in the U.S.: Mexico (15.6%), China (13.5%), and Canada (13.0%). (By comparison, imports from the European Union as a bloc account for 18.6% of the total.) The primary categories of these imports include vehicles, machinery, and fuel.

With these threats, Trump appears to be laying the groundwork for his negotiating stance ahead of his second presidential term, which begins in two months. While their currencies took an immediate hit, policymakers in Canada and Mexico swiftly indicated potential retaliatory measures against their shared neighbor. This back-and-forth signals that tensions are likely to continue in the months ahead.

So far, Trump has made no mention of tariffs on European imports. This omission may reflect the recent shifts in trade flows. Since the energy crisis, European imports of American oil and gas have risen significantly. On Wednesday, ECB President Christine Lagarde suggested that these elevated energy imports could serve as leverage to dissuade Trump from targeting European products. While I’m not sure if it is within her mandate to openly discuss political strategy, increasing external dependency (on the US) could only further weaken Europe’s long-term competitiveness. Unfortunately, Europe’s position at the negotiating table is relatively weak.