SIOUX FALLS, S.D. (KELO) — In recent days U.S. markets have dropped amid continued confusion and uncertainty about trade policy and negotiations as U.S. President Donald Trump has issued more threats to trade partners of increasing tariffs.
These threats include 200% tariffs on alcohol from EU countries, and 25% tariffs on all steel and aluminum, which have in turn sparked retaliatory tariffs from impacted nations such as Canada.
SDSU professor with the School of Management and Economics, Evert Van der Sluis, says that things have accelerated since January.
“I think some time ago, a lot of people thought that tariffs is the most beautiful word — but very few people actually took it seriously or thought that these tariffs were going to be used as a stick or a negotiation tactic,” said Van der Sluis, “but that the administration wouldn’t really follow through on some of the worst threats.”
Instead, Van der Sluis says it’s looking like the threats may need to be taken seriously.
The decisions made so far have already had some fallout, said Van der Sluis. “It has lead to a lot of thinking on the parts of our trade partners as to ‘what does the U.S. really want’,” he said.
The other question for trade partners is whether the U.S. will actually follow through.
“Some of these tariffs have been on-again-off-again,” said Van der Sluis. “It appears that the tactic is ‘throw something big out there, and if our trade partners change their behavior, at least in part, we have accomplished that goal.”
Van der Sluis says this process can be done in the short run, “but pretty soon your trading partners are going to see through what you’re trying to do and in the process you lose an amount of credibility — overall reputation — America cannot be trusted any longer.”
The concern for international markets is the idea that no mater what the U.S. says, they may go back on it the next week.
This loss of credibility is especially true if trade partners agree to changes, and then the U.S. does not stick with the agreement,” said Van der Sluis.
This loss of credibility is just one negative potential impact of the current use of tariffs, said Van der Sluis. “It has created a lot of uncertainty, and businesses, they want certainty,” he said.
Another negative impact, stemming from the uncertainty, is concern over inflation.
“If these tariffs really go up, that could have inflationary effects, meaning prices could go up,” said Van der Sluis. “Then we have lots of disruptions — large job losses very likely.”
While the market has taken a hit in the U.S., with Trump recently refusing to rule out a recession, despite the S&P 500 and Dow closing at record highs just two months before he took office, the concern is that international markets could also hit a recession.
“We could take the example of Mexico and Canada — it appears from their point of view that one of the very purposes [of the tariffs] seems to be to drive their economies into recession,” said Van der Sluis.
Such an event, which Van der Sluis says could easily happen, would also have negative effects on the U.S.
“Let’s take a look at the example of Mexico. If that would really happen and it would drive Mexico into a recession — then one thing that could happen would be that there’s less opportunities for people to find work in Mexico,” said Van der Sluis. “More than likely that’s going to lead to more immigration north.”
As for whether the U.S. may be headed for a recession, Van der Sluis says such a thing is difficult to predict. “If these tariffs get to be too high, that will have a negative impact on our economy. Whether that’s going to lead to a recession is very, very difficult to say,” he said, “but it would be a concern.”
Asked about potential positive results from the tariffs so far, Van der Sluis was clear to point out that there are occasions when economists may support tariffs, but that positive impacts of these have not materialized at this point. “I don’t see the positive effects of this happening just yet,” he said.
In the past, Van der Sluis had raised the idea of tariffs being positively used in very narrow and specific circumstances. In January, he told KELOLAND that Trump’s use of them was more akin to a sledgehammer.
“These tariffs that are being thrown around are in very high numbers,” said Van der Sluis, referring to the 200% tariffs aimed at EU countries. “In economics, we would call those prohibitive in the sense that nobody’s going to buy any more products.”
The administration has said they are working on ‘retaliatory’ tariffs, which Van der Sluis says may make the sledgehammer analogy less accurate. Rather, he says implementing retaliatory tariffs against a variety of different countries and industries can make for a cumbersome web of tariffs for businesses to try to work through.
“I’m not sure it’s just not the sledgehammer approach anymore,” said Van der Sluis, “but we may get lost in the forest on this one.”
