𝐓𝐫𝐮𝐦𝐩’𝐬 𝐔𝐥𝐭𝐢𝐦𝐚𝐭𝐮𝐦 - 𝐒𝐭𝐞𝐩 𝐈𝐧 𝐋𝐢𝐧𝐞, 𝐎𝐫 𝐏𝐚𝐲!

𝙄𝙣𝙩𝙧𝙤

Bend the knee, or pay the price! - That’s the message Trump has been sending out to major nations around the world since "Liberation Day” back in April, where he announced sweeping tariffs on countries around the world.

Since then we’ve seen increases, decreases, new trade agreements, broken trade agreements and memes about penguins refusing to accept the tariffs.

In this post, I want to go through what’s happened so far, the implications, and what’s next.

𝙋𝙚𝙣𝙜𝙪𝙞𝙣𝙨

As mentioned, the first wave of tariffs was quickly ridiculed online for its inclusion of various uninhabited territories, including Heard and McDonald Islands, which boasts a population of over 2 million penguins. This was just one of many territories included that had zero trading relationship with the US at all.

Journalists soon moved on from the strange list of territories, to the bad maths used to justify the tariffs. Countries like Germany and South Korea, who export large quantities of cars, electronics, and industrial goods to the US had some of the lowest rates. Meanwhile countries like Pakistan and Algeria that had a trade deficit with the US were slapped with 25% and 30% respectively.

𝙏𝙝𝙚 𝘼𝙧𝙩 𝙊𝙛 𝙏𝙝𝙚 𝘿𝙚𝙖𝙡 - 𝙉𝙚𝙜𝙤𝙩𝙞𝙖𝙩𝙞𝙤𝙣𝙨

It didn’t take long for some countries to set up calls, fly out negotiators, and attempt to charm Trump into giving them better deals. Trump hit pause on implementation of most tariffs to allow for negotiations, but this was messy, with some tariffs being changed, some being paused, some resumed again, etc.

Among the first in line to negotiate, was Japan, who negotiated their rate down from 24% to 15% in late July. In August however, Trump reneged on the deal reinstating the 24% rate for electronics. Japan has since filed a complaint with the World Trade Organization.

𝙉𝙤 𝙋𝙖𝙞𝙣 𝙉𝙤 𝙂𝙖𝙞𝙣?

The impact of tariffs has still not fully seeped through to consumers in the US, but increasingly businesses are passing on the costs they are incurring as they struggle to shift supply chains and adapt production processes.

Due to the turbulent status of Japan’s trade deal with the US, $SONY (Sony Group Corp.-ADR) postponed shipments of PS5’s to the US while they waited for clarity. Eventually, they opted to adjust the price for US consumers from $499.99 to $549.99, directly citing the higher import costs.

$CSCO (Cisco Systems Inc) and $BBY (Best Buy Co Inc) were the first big names to raise prices back in May, and rumours even circled that $AMZN (Amazon.com Inc) was considering including tariff surcharges as an additional line-item in product descriptions, although they never followed through.

𝘽𝙚𝙣𝙙 𝙏𝙝𝙚 𝙆𝙣𝙚𝙚

Company CEO’s quickly pleaded with the Trump administration for exceptions or delays to tariffs to give them time to adjust. The auto industry was particularly badly impacted, with both $F (Ford Motor Co) and $GM (General Motors Co) reliant on complex, lengthy supply chains for parts.

$AAPL (Apple) CEO Tim Cook even gifted Trump a 24-karat gold plaque during negotiations that would involve Apple investing a further $100bn in US manufacturing. Apple was forced to the negotiating table after Trump threatened a 100% tariff on iPhones and Macs as part of a broader tariff on non-US produced semiconductors.

𝙂𝙚𝙤𝙥𝙤𝙡𝙞𝙩𝙞𝙘𝙖𝙡 𝙎𝙚𝙘𝙪𝙧𝙞𝙩𝙮, 𝙊𝙧 𝙏𝙖𝙭 𝙏𝙤 𝙏𝙝𝙚 𝙏𝙧𝙚𝙖𝙨𝙪𝙧𝙮?

More recently, it was $NVDA (NVIDIA Corporation) that grabbed headlines, after Jenson Huang secured a deal to pay 15% of revenue from its H20 chip sales to China, with a similar deal carved out for $AMD.

What makes this particularly odd is that the US had previously been signalling that this was an issue of national security, and that under no circumstances should AI chips be sold to China.

This policy tells a different story though: This is just a new method of taxation. With US national debt climbing to record highs, this looks to be the method of choice for the US government to help keep the treasury healthy.

The party for business is taxing business?

𝙄𝙨 𝙏𝙝𝙞𝙨 𝙀𝙫𝙚𝙣 𝙇𝙚𝙜𝙖𝙡?

Finally, last week all of this culminated in the question economists, journalists, business leaders, politicians and investors have been contemplating ever since it started back in April:

Is any of this even legal?

On August 29th the US Court of Appeals gave us an answer - In the majority of cases: No.

As many politicians were claiming, Congressional approval is required for most reciprocal and trafficking tariffs to be legally valid. Trump, until now was bypassing congress and utilizing his presidential authority under the Emergency Economic Powers Act, despite most people clearly understanding that this is not an emergency situation.

What’s interesting to me though, is that this decision may not prevent him from continuing to make the more bespoke business specific deals like he did with Nvidia. Arguably, some other legal barriers may become a hurdle, and I’m sure companies and politicians are already doing groundwork to build a case to challenge it in the future.

For now though, it seems likely that we could see more custom deals, to enable Trump to raise more money while pressuring companies to step in-line with his goal of on-shoring manufacturing to the US for key industries.

𝙁𝙞𝙣𝙖𝙡 𝙏𝙝𝙤𝙪𝙜𝙝𝙩𝙨

That’s all for this one. I’m working on another post about AI Slop next, but I’m super excited to hear your thoughts on everything I discussed in this post. Do you think this is actually a smart way of taxing large companies, many of whom are known for avoiding as much tax as possible? Was that the goal all along? Will the loophole allowing him to make these deals also be closed?

Regardless, there’s no denying that this has made for a lot more uncertainty when investing in US based tech companies especially. Perhaps now is the time to consider more non-US companies? What do you think?

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