The Trump Administration recently placed tariffs on France, Brazil, and Argentina. President Donald Trump accused Argentina and Brazil of hurting American farmers through currency manipulations. Before leaving for a NATO conference, Trump tweeted "Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries". This move officially upends the 2018 agreement with Latin American countries with Trump to accept U.S. quotas on their shipments instead of import taxes.
Brazil is currently fighting large unemployment rates and low growth rates after two years of a deep recession. Argentina is experiencing inflation above 50%, debt, and widespread poverty. Trump's taxes against Brazil and Argentina apparently took officials from both countries by surprise as countries usually provide a warning in order to allow the current goods in transit to arrive at the country's ports without being taxed. However, as per Trump's tweet, the tax was effective immediately.
Marc Chandler, chief market strategist for Bannockburn Global Forex, believes that "These things are signs of a very sick patient, not signs of a robust economy. The whole region is on fire." There is little evidence that currency manipulation was used to gain an unfair trading advantage. Their weak currencies reflect their economies as a lot of money is leaving their borders which is what has lead to the currency devaluation. The weaker currencies have made their crops cheaper relative to U..S crops which creates another problem for U.S. farmers who have already been hit hard as a result of the administration's taxation against China.
Few economists; however, agree with Trump that Brazil and Argentina are manipulating their currency. Currency manipulation occurs when the country purchases U.S. dollars to make its own currency weaker and therefore its goods cheaper and more desirable on the international markets. However, both Brazil and Argentina have been selling U.S. dollars from their reserves in the past few months in order to help support their falling currency - which is the opposite of what a currency manipulator would do.
Just after Robert Lighthizer, the president's chief trade negotiator, released investigation reports which showed that a French digital services tax heavily discriminated against U.S. companies. President Trump responded by levying tariffs of up to 100% on $22.4 billion in products that are heavily imported. such as cheese, wine, makeup, and yogurt. French lawmakers have deemed the tax "Les GAFA" which is an acronym for Google (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), Facebook (NASDAQ: FB), and Apple (NASDAQ: APPL)- companies that the French government has accused of not paying enough taxes on revenue earned within their borders. The tax is meant to prevent these firms from avoiding taxation because they place their operating headquarters in low-tax European countries. Les GAFA would impose a 3% annual tax on any revenues within France's borders. Lighthizer commented that the U.S will also be looking into digital taxes introduced by Austria, Italy and Turkey.
President Trump meanwhile also urged Federal Reserve Chairman Jerome Powell and the Fed to lower rates and take actions that would prevent other countries from devaluing their currencies. President Trump tweeted, "This makes it very hard for our manufactures & farmers to fairly export their goods. Lower Rates & Loosen -- Fed!".
Such actions on Trump's part could make way for retaliations and could greatly weaken relations with Brazil and Argentina.