This week we have learned that the reason is difficult to determine the goal of Trump’s commercial policy is because there is in fact no specific goal. Is it a reduction in US trade deficit? Is it the increase in revenue to pay the extension of the 2017 tax cuts and job cuts which expires later this year? Is this about acquiring a diplomatic lever in other negotiations, such as border security?

Whatever the goal of politics, it is unlikely to benefit either the debt and US deficits or the bond market.

THE Donald Trump He wrote in a post on social media, as he was preparing to impose 25% duties on products entering the US from Mexico and Canada at midnight last Tuesday: “Do your product in the US and there are no woods! Because the United States should lose trillions of dollars in other country subsidies … “.

Thus, it is clear that the use of duties concerns the correction of any commercial imbalance with their two largest commercial partners. Reasonable. But Kevin Hassett, Director of his National Financial Council White Househe said no, this is not at all. “It’s not a trade war, it’s a drug war,” he told CNBC. Maybe he’s right. Because Mexico and Canada made some symbolic concessions about security at their borders with USA On Monday, Trump immediately suspended the duties.

There are two analyzes here: The first is that White House trade advisers certainly understand the contradictory nature of Trump’s debate on tariffs. Trump has said that such contributions to foreign goods – paid by US citizens – will raise the funds necessary to pay its extension Tcjawhich Congress’s budget office estimates to cost $ 4.6 trillion in the next decade.

The other “reading” is that duties make imported products more expensive. In the midst of Monday’s chaos, wholesale Associated Wholesale Grocers Inc. sent a warning to 1,100 US retailers who are its customers to get ready to pay 25% more for products than Mexico and Canada. It is also estimated that the average price of a car could increase by about $ 3,000. Since US consumers have complained about the high prices of food and other goods due to increased inflation derived from the pandemic, it would give them even more motivation to limit or seek cheaper alternatives.

If American consumers reduce their markets, Trump’s forecasts will fall out and incoming funds from domestic consumption will not fill the gap to pay for TCJA expansion. The result is greater debt and wider fiscal deficits while US borrowing already exceeds $ 36 trillion and government spending exceeds $ 1.8 trillion per year, or almost 6.4% of gross domestic product.

See how the David Kellyhead of world strategic analyst of JPMorgan Asset Management, put it in his recent note:

Based on data by November, total imports of goods from the US last year were about $ 3.3 trillion. However, this number will decrease significantly: (1) Considering the reductions in the volume of imports due to higher prices, (2) the negative impact on GDP by retaliation of tariffs to exports and (3) the ability of duties to increase inflation And therefore interest rates. In addition, if the federal government was trying to compensate exporters on the impact of retaliation for tariffs, as was the case with the first Trump government, net budget savings would be further reduced.

If this is not enough to stimulate bond investors, then think that Trump’s bullying to the narrower trading partners and allies of the US is certainly forcing nations around the world to think about how to differentiate away from the US in case They become the next target of duties – further shrinking the expected duty revenue. THE Canada He is already looking for ways to disconnect his oil activities from the US and send more slow to Asia, according to Bloomberg News. And the European Union, which may be Trump’s next target of tariffs, has concluded an agreement with four South American countries in December to create one of the largest trade blocks in the world.

Add to this mix the fact that exporters in the US will also look for ways to avoid duties – as they did in Trump’s first term. “Trump’s threats and executive orders so far suggest that the emphasis is currently more on negotiating leverage,” Bloomberg Economics wrote in a report on Tuesday. “This approach is less suitable for increasing fiscal revenue, as it allows imports to go away from tariff routes, eroding the earnings profit from raising rates.”

What few seem to be talking about is how trade plays a key role to justify the tolerance for the big debt that the US is carrying, as well as the big fiscal deficits. Trump’s posts in the media show that it equates US trade deficits in some way a subsidy for other economies. But the opposite is true. As Nobel laureate Paul Krugman has described, America buys goods and services at cheap prices that cannot be reproduced in the US.

The existence of a commercial surplus may sound attractive and indicate financial success, but this can be misleading, given the equation of the balance of payment. Thus, when nations go through a trade deficit in a commercial surplus, this may often be due to bad reasons. As the Krugmanwhen some southern European countries faced a debt crisis just twelve years ago, they were converted from a trade deficit into a surplus. But this was not because they suddenly began to export more than they introduced, but because they stopped to push funds, forcing a sharp withdrawal from imports.

The reality is that the US is based on foreign money to finance their expanding debt and enlarged fiscal deficit. Of course, both need to be addressed, but entry into trade wars is not the answer. The formation of trade as good or evil, depending on whether America has a surplus or deficit with its allies, is in danger of turning an ever -increasing fiscal situation into a real crisis.

Of Robert Burgess