[The Editors' Verdict] Trump's 'Tariff War': Bluff or Real Intent?

Resolving US Trade Deficit and Security Issues
Some Say "A Strategy to Enhance Negotiation Power"
Clearer and Stronger Pressure Than in the First Term

Donald Trump, the President-elect of the United States, recently declared that on his first day in office, he would impose a 25% tariff on all products from Mexico and Canada, and an additional 10% tariff on all Chinese products on top of the existing tariffs. This was not part of his campaign pledges. Immediately after finalizing his cabinet with loyalists, he signaled an aggressive stance toward the United States' three largest trading partners: China, Mexico, and Canada. As of September this year, these three countries account for 42% of the United States' total imports.

In response, Mexico immediately pushed back, indicating it would retaliate with counter-tariffs. In Canada, the Prime Minister promptly called President-elect Trump. The trilateral economic alliance among the United States, Mexico, and Canada now appears to be at a crossroads. China issued a pointed warning, stating, "There are no winners in a tariff war."

The global economy is already reeling from a single statement by President-elect Trump, who still has more than two months before his inauguration. There is growing concern about what kind of extreme policies might be implemented after he takes office.

However, some argue that President-elect Trump's tariff threats might serve as 'negotiation leverage' not only to address the trade deficit but also to resolve national security issues such as illegal immigration. If actually implemented, these measures could exacerbate inflation in the United States. Goldman Sachs predicted that the core Personal Consumption Expenditures (PCE) price index would rise by 0.9%, while the Yale University Budget Research Institute forecasted that U.S. consumer prices could increase by 0.75% next year.

The fact that President-elect Trump nominated Scott Bessent, CEO of hedge fund Key Square Group, as Treasury Secretary for his second administration supports this argument. Bessent has defended Trump's tariff policies but has also recommended a "gradual imposition." The market has expressed hope that CEO Bessent could put the brakes on President-elect Trump's extreme policy proposals, and following his nomination, the New York Stock Exchange hit record highs for two consecutive days.

Let's look back. During the first Trump administration, when the United States pressured South Korea to significantly increase its defense cost-sharing, it initially demanded up to a fivefold increase, but the negotiation ultimately resulted in only about an 8% rise. Additionally, although a 25% tariff was imposed on steel products, which caused significant concern, negotiations led to an arrangement where tariffs were waived for specific quota allocations. This gave rise to the saying, "Bluffing is Trump's strategy." In Trump's book, "The Art of the Deal," he describes his negotiation style as applying "maximum pressure" to get what he wants.

It remains unclear whether the current tariff threats are a negotiation tactic aimed at extracting concessions on trade and other policy priorities from U.S. trading partners, or whether they mark the start of a campaign to reshape global trade and the U.S. economy. What is certain, however, is that President-elect Trump, learning from the 'mistakes' of his first term, will use every means of pressure to achieve his goals in this second administration. This is why countries around the world have been simulating scenarios of Trump's return to power and making every diplomatic effort to establish lines of communication with his team even before the U.S. presidential election.

Yesterday, our government convened the 'Ministerial Meeting on Strengthening Industrial Competitiveness' to prepare for the "uncertainty in the global trade and industrial environment" that may arise from the launch of Trump's second administration. This was the first such meeting in two years, and the government announced plans to hold it regularly. Although belated, we hope that, as the government has promised, effective and diverse policy measures will be introduced to respond to global industrial competition. After all, golf practice is hardly a strategy for dealing with Trump.