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“RECIPROCAL TARIFFS TAKE EFFECT AT MIDNIGHT TONIGHT!,” President Trump touted on Truth Social before the Aug. 7 cutoff went into effect. “BILLIONS OF DOLLARS, LARGELY FROM COUNTRIES THAT HAVE TAKEN ADVANTAGE OF THE UNITED STATES FOR MANY YEARS, LAUGHING ALL THE WAY, WILL START FLOWING INTO THE USA. THE ONLY THING THAT CAN STOP AMERICA’S GREATNESS WOULD BE A RADICAL LEFT COURT THAT WANTS TO SEE OUR COUNTRY FAIL!”
Everything from countries and industries to corporations have been caught in the crossfire since Trump came into office in January, vowing to upend the global trading system by way of tariffs and the reduction of trade deficits. His three-fold goal: reshore American manufacturing, protect U.S. industries, and reclaim a key source of government revenue. However, the speed at which he is willing to pursue this triad has sent many scrambling, and their responses might be best understood through a popular framework first described by American physiologist Walter Cannon more than a century ago.
Fight: As the U.S. ratcheted up tariffs on China, the latter responded in kind until things spiraled out of control. The U.S. rate eventually reached 145%, while China raised its levies to 125%, effectively halting trade between the world’s two largest economies. Beijing then pulled out its rare earth wild card, prompting Trump to negotiate an end to the battle, but also kicking off a warp-speed mineral project to close the U.S. vulnerability.
Flight: Some of the BRICS nations, like Brazil and India, are looking at alternative markets. The two countries now face steep U.S. tariff rates of 50%, prompting them to look for new export opportunities in the Middle East, Asia, Africa, and Latin America. “What bargaining power does a small Latin American country have against the United States? None,” said Brazilian President Luiz Inacio Lula da Silva, while Indian Prime Minister Narendra Modi announced he “will never compromise on the interests of farmers, livestock owners and fishermen.”
Freeze: It took a while for the European Union to formulate its strategy on how to respond to Trump. The bloc initially held out, hoping for better trade terms, and was hesitant to fight back due to the possibility of things backfiring. While it did prepare a series of countermeasures, they were never implemented as it sought a diplomatic solution and off-ramp to the conflict. A deal was ultimately agreed to, with EU President Ursula von der Leyen noting that a “15% [tariff rate] is not to be underestimated, but it is the best we could get.” Switzerland was also caught off guard and rushed to the U.S. after an initial freeze.
Fawn: While many countries have sought to appease Trump and offer concessions, the latest entities engaged in this response have been corporations. Shares of Apple (NASDAQ:AAPL) advanced 5% on Wednesday, and another 3% in premarket trade, after announcing a $100B investment in the U.S. at a White House event (bringing its total to $600B over the next four years). “We’re going to be putting a very large [approximately 100%] tariff on chips and semiconductors,” Trump told reporters, “but the good news for companies like Apple is, if you’re building in the United States, or have committed to build without question in the United States, there will be no charge.”