Wilbur Ross on New Tariffs: Wealth Redistribution and Trade Negotiations

New Tariff Rates and Global Impact

• 🎯 Wilbur Ross was not surprised by the average tariff rate but was surprised by the extreme skewing, with rates like 46% for Vietnam and 34% for China, while Brazil, Chile, and Colombia received much lower rates.
• 💡 The skewing is expected to cause a redistribution of products from Asia to Latin America, leading to a transfer of wealth and income from Asia to Latin America.
• ⚠️ Ross anticipates retaliation but believes it won't be proportionate, as a $1 trade penalty inflicted on smaller economies has a greater impact than on the U.S.

Trade Negotiations and Formula Uncertainty

• 🤝 There is a good chance of negotiations to bring rates down, based on the principle of reciprocity: if other countries lower their tariffs, the U.S. will reciprocate.
• ❓ A key uncertainty is the formula for tariff reduction, specifically how bringing down high tariffs on a particular product will work and what actions other countries need to take.
• 🔍 The U.S. will need to guard against transshipment, where products from high-tariff countries like Vietnam and China are rerouted through lower-tariff countries to avoid the punitive rates.

Historical Context and Impact of Tariffs

• 🥫 Ross recalls a 2018 discussion about smaller tariffs on steel and aluminum, questioning their impact, but acknowledges the current tariffs are larger and thus have more significant effects.
• 📈 While some raw materials and commodities naturally trade within a range, tariffs north of 25% are considered punitive and likely to prompt high-level negotiations.
• ⚡ Tariffs in one sector, like steel, can bleed into other protected sectors, affecting industries such as oil and gas extraction, though Ross believes this won't deter oil and gas production significantly.