Trump’s Tariffs: Reciprocal Edition + Live Q&A

Peter Zeihan here coming to you from a hotel room because I’m traveling. It’s tariff day at the white House, so lots of news, but honestly, not the level of detail we need yet. So we know there’s more information that will be coming up from the white House in the next day or week or so. But where we are right now is that Donald Trump has listed what he calls reciprocal tariffs. 

About how 50 countries, he indicates that more will be coming. And there is no information at the moment on sectoral tariffs. So specifically on agriculture or semiconductors or anything like that. So working with what we now know, the ones for the Western hemisphere aren’t too bad. Most of them are about 10%. That is enough to drive up the cost of integrated supply chain systems, but probably not enough to get most people to move production. 

So that just turns out to a flat cost on everything that comes in as part of America’s existing trade deals with Chile, with Colombia, with Central America, with Mexico and with Canada. This is an inflation issue rather than a re industrialized or a movement issue at this point. I also need to underline that this is not the end of the story. 

And we also, on top of that, have a 25% tariff on all automotive products, unless they were built in the United States from American parts. So if, for example, if Ford was to bring in parts from Mexico and then do value out of the United States and ship them to Canada for final assembly, most of that would still be taxed twice, probably more like 11 times, because every time you cross the border, you get that tax again.So we’re now looking at combined with this new 10% tariff, probably increasing the average cost of a vehicle really depends upon the vehicle. But somewhere between 4 and $14,000 based on where you’re getting it from. The second big chunk is when you’re looking at Europe. I don’t want to say they got off easy, but they only have a 20% tariff. 

That, again, is not enough to rewire supply chains. It’s just enough to crimp the trade relationship and raise the cost of products. Keep in mind that we don’t get a huge amount of stuff from Europe. That is not what I would call, you know, finished value added stuff. So it’s not that back and forth stuff like we have in NAFTA, where even a low tariff number can have a real crushing impact, it’s more finished products or luxury products or cultural products that are coming up. 

They just get 20% more expensive. Third, and my biggest concern is Southeast Asia. I really all of East Asia, the biggest numbers that he allotted for countries that were in like pipsqueak like 

Cambodia is like 45% anyway. Japan, Korea, Taiwan, all the Southeast Asian countries, almost all of them, they’re pretty big numbers, 25% and up. 

And this is a real problem moving forward. Not only is the United States really technologically intertwined with the Northeast Asian countries, Japan, Korea and Taiwan, and that makes everything with the semiconductor supply chain really problematic because those like with NAFTA products are going back and forth and back and forth and back and forth all the time. And the United States provides the most value added parts of that product. 

This blows that up from the inside and really incentivizes other countries to fill that gaps if they’re technologically able. And that will really help out Japan, Switzerland and Korea and Taiwan over the long run. Assuming there’s not another step, there will be another step. I don’t want to play that, but what I’m really worried about is Southeast Asia, because in a world where China breaks, Southeast Asia is the part that’s going to play the most constructive role hand-in-hand with NAFTA, I might add, for picking up the pieces and building whatever is next. 

And now there’s basically a 25 or more percent tariff on almost everyone who was involved in Southeast Asia in case of Vietnam specifically, which is the country that’s probably going to do the best out of this and be America’s strongest partner in the area. It’s now a 46% tariff. That’s enough to wreck the relationship overall. So all the progress that we have made in the last ten years and moving away from China, these new tariffs just punch in the gut and we’re going to have to start over. 

And that is going to be incredibly expensive. And then finally there’s China itself. 34% is the starting number that appears that that is on top of the 20% that Trump already did in the last two months. And that’s before you consider the additional price on agricultural products or automotive products or what are being called secondary tariffs from, Venezuela. 

So at a minimum, we’re now looking at, see, 3454 or 6474. We’re looking at 79 and then modified by product. So if it’s car parts for example, 79 becomes 104. That blows up the single largest bilateral economic relationship on the planet that is not within NAFTA. And then of course, we’ve got a couple of grenades in the room of NAFTA as well. 

Anyway, talking about all of this put together, we are easily looking at a recession that is going to last a year. If everything that Trump hopes comes to pass, and this leads to an absolutely massive explosion of investment in the North American sentiment, let me rephrase it. In the American system, that’s a 12 to 20 year process. 

So a 12 to 20 year process with much more expensive goods and eventually a part system that has to divorce itself from everybody else that could get really bad really fast. Again, about the only saving grace here is that, within the Western Hemisphere, the base tariff is only 10%, which will mean everything is more expensive, but it probably won’t break down. 

So recession for about a year, much higher inflation that we needed it to be, will probably break 6% this year in a conservative basis. And never forget that this is phase one. And Trump has made it very clear that more, much more is coming down the pipe.