No love Letters

President Trump has started an epistolary relation with some of the U.S. major trading partners. In the age of AI, his preferred mean of communication is one that has been used for centuries. What do the letter say? They basically says that starting August 1st the U.S. will charge a tariff of 25% to compensate for what he believes has been an unfair trading relationship for decades. He provides the carrot of bringing manufacturing to the U.S., but holds firmly the stick in case they retaliate with tariffs saying that he will increase the U.S. ones proportionally (or not). This is likely a tactic to flex muscle before China. Furthermore, Trump includes a succinct reference to China in the letters in reference to Transhipping. For those items that China diverts to friendly countries such as Vietnam or Indonesia (please see chart below) on its way to the U.S., which they clearly have, the tariff rate will be 45%. Is there a way to control that? It’s easy to put it in the letter, perhaps not so much to tag those items in foreign ports. The U.S. is collecting tariffs at a $300 Bn annualized pace, but it will be difficult to maintain and will probably cause trade to slow down. Perhaps by then Trump would have changed his mind or moved into another strategy. During Trump’s first mandate, Tom Friedman, a three time Pulitzer winner, was asked if Trump was the president that the U.S. deserved, and his answer was (paraphrasing): probably not, but it’s the U.S. president that China deserves.

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