The USD is Currently Stronger Against the Euro
The US is also imposing high tariffs on its strategic partners in Asia. Vietnam and Indonesia, for example, have had to absorb tariffs of 19%.
The situation in India remains unclear, and the 50% tariff on imports from Brazil will primarily affect US consumers. Brazil is not dependent on the US in any way. The only consequence will be to strengthen the embattled Lula and further distance Brazil from the US.
Brazil is an important source of many things for the US, given its abundant natural resources. The US should actually take a more reasonable approach based on its own interests.
In Mexico, President Sheinbaum is taking a much calmer and more consistent approach. However, the tariffs imposed on Japan and the EU do not indicate what an agreement with the US might entail. It should be remembered that the current trade agreement with the US, the USMCA, dates back to when Donald Trump was president seven years ago. The fact that this agreement is already being perceived as the exploitation of the US after such a short time suggests that any deal reached today would not be substantial enough to have a lasting effect.
The World Will Break Apart and Then Come Back Together Again
The US still has overwhelming economic and military power today. However, it already recognises that this power is waning and is now trying to use it to delay or even reverse this decline. The US is not concerned that this comes at the expense of its existing allies — it is simply pursuing its own interests.
For the rest of the world, this means that the dominant power is no longer willing to act as a benevolent leader. As a result, connections that were initially considered secure are breaking down. As with any change, this is initially a burden. There are numerous complaints about change, which are wrongly directed at one’s own government, which is supposed to protect companies. But it cannot do so. At least not in the desired way, namely ensuring that the hegemon ‘works’ again. That is over!
What Can Governments Do?
It is pointless to try to reason with the hegemon. It pursues its interests in a cold and selfish manner. If foreign trade is dismantled here, affecting everyone globally, the only logical response would be to advance one’s own interests by concluding robust agreements with the rest of the world. Together, Asian, African and Latin American countries form a much larger economic bloc than the US, and are comparatively underdeveloped. China is far ahead in some areas, and Europe would have to hurry to keep up.
What Can Companies Do?
When fundamental relationships break down, companies must be adaptable. In today’s world, a lack of willingness to adapt is not appropriate.
Doing nothing will not help you to avoid higher tariffs and a weaker USD. Sudden changes can challenge the resilience of companies.
I see improving the financial intelligence of companies as a key factor, but this cannot be mandated, especially since it is rarely possible to cover it in-house in terms of personnel. Financial intelligence cannot offset 15% customs duties and 15% USD devaluation overnight. However, it is possible to counteract USD devaluation and protect the business against further ‘blows’ in the long term. The primary focus should be on building up generous cash flow buffers.
