Donald Trump has always believed that the best way to negotiate is not on equal terms, but from a position of strength. That it is better to strike first and then sit down to talk rather than promoting cordiality. That threats, displays of power, and pressure are the right tools. He believed this as a businessman and believes it even more as the president of the world's leading economic, military, and nuclear power. But if he can also sow chaos, unsettle his partners, whom he sees as rivals and freeloaders, even better.
On Monday, still reeling from the televised argument with Volodimir Zelenski at the White House, Trump wanted to appease the rural world, causing a general stir in the process. "To the great farmers of the United States: get ready to start producing a large amount of agricultural products that will be sold WITHIN the United States. Tariffs will be applied to foreign products on April 2. Have fun!" he wrote on his social media.
Shortly after, responding to questions from journalists, he confirmed that tariffs on Canada and Mexico will finally come into effect on Tuesday, closing the door to a last-minute agreement, as the Mexican president had suggested earlier in the day. "The tariffs, you know, are ready," said Trump. "They will come into effect tomorrow," he concluded.
The market's response was immediate, with the S&P500, the benchmark index, closing down 1.76% after plunging 2.3%, the biggest drop of the year. Meanwhile, the Nasdaq, the tech-heavy index, dropped 2.64% after falling below 3%, a correction of almost 10% since December. All this on a day marked by the realization that there will be no extensions and the warning from Canada, confirming that it will respond with retaliatory trade measures targeting $155 billion in U.S. imports, as lamented by Foreign Minister Mélanie Joly. The Russell 2000 index, which includes smaller and more exposed companies, dropped another 2.5% during the day, ending down 1.86%, while the VIX, the volatility index informally used as a "fear gauge," rose to nearly 23, above its long-term average.
The problem with Trump's message on social media, like many of his announcements and outbursts when speaking in the Oval Office, is that it is very difficult to interpret. From its wording, it is not really clear whether by pointing to agricultural products starting on April 2, he is talking about something new or old. Whether it is just a political or electoral gesture to farmers. Whether it is something specific or part of the reciprocal tariffs with the entire world that he has boasted about. Whether he is referring to the commercial penalties on Canada and Mexico, which no one knows if they will be applied tomorrow or in a month. Whether he is thinking about the European Union, beyond cars. Or if it is especially about China. And what quantity is being discussed. This uncertainty is what he seeks to make others bend to his will.
Right after taking office, he approved 25% and 10% tariffs on China, quickly suspending the first ones after his neighbors convinced him that they would make extra efforts at the borders, but he maintained those on the Asian giant. Last Tuesday, Trump said that there will be no more pauses for American nations and an additional 10% on top of the 10% already applied to China. These tariffs "will come into effect, in fact, as scheduled," he declared last week, until the fentanyl crisis "stops or is seriously limited."
Trump has reluctantly admitted that his measures could lead to higher prices at home, but he maintains that it will be short-lived and will be worth it for the revenue it will generate. However, the agricultural sector is still concerned. Immigration policies have affected the workforce, and as other countries replicate with the same trade measures, selling abroad will become increasingly difficult and expensive. Not to mention many of the specialty crops that Americans love, which are almost entirely imported from abroad.
Trump's tweet is better understood if one knows that China has issued two responses in recent days. The first, over the weekend, stating that they are not too concerned about the tariffs, as today's world is not the same as in 2017, when this was done during his first term. The second, preparing countermeasures against U.S. agricultural exports.
When last week Donald Trump threatened with an additional 10%, for a total of 20%, accusing Beijing of not doing enough to stop the flow of fentanyl to the United States, something China called "blackmail," there was silence. But today the U.S. woke up to a response. "China is studying and formulating relevant countermeasures in response to the U.S. threat to impose an additional 10% tariff on Chinese products under the pretext of fentanyl," reported the Global Times on Monday, citing an anonymous source. Analysts interpret this as a direct message from the Chinese government, the owner of the media outlet. "The countermeasures will likely include both tariffs and a series of non-tariff measures, and are likely to include U.S. agricultural and food products," the report adds.
Hence, Trump wants to reassure his citizens amid price hikes, a rise in unemployment due to government layoffs, and what is feared to be a significant drop in GDP this quarter. China remains the largest market for U.S. agricultural products. In 2018, Beijing imposed tariffs of up to 25% on soybeans, beef, pork, wheat, corn, and sorghum in retaliation for Trump's tariffs on Chinese products. And something tougher is expected now.