Heraclitus is credited with the quote, “the only constant in life is change.“ This has rarely been as true as it is now, given the nearly constant stream of changes to tariff and trade policy. Despite this constant shifting, electrical contractors, their vendors and their clients have to plan and set strategic and tactical goals. What can be expected in the months to come? The best that can be done at this point is to look at scenarios to determine which are more or less likely. There are essentially a good set, a bad set and a really ugly set (with apologies to Clint Eastwood).

The ”good” set basically assumes that Trump the dealmaker will soon emerge and do what he has done through the majority of his business and political career. Rumors to this effect have been circulating for weeks, and there have already been several of these instituted. Most recently, there was a retreat from the strictest of the tariffs affecting the auto sector. Ostensibly, there are nations very close to getting deals, including Japan, South Korea, Mexico and parts of Europe. 

The argument against this frenzy of deals is that it takes two (or more) to engage, and many of these nations are not prepared to offer what the administration is demanding. 

There is also the fact that U.S. consumer patience has worn thin and politicians are worried about constituent support. Analysts are giving this set of scenarios a 60% chance. The holdup here may well be the nations that Trump has to cut deals with. They were expected to be more than eager to reach a deal and make concessions, but it turns out they have more options than originally expected. 

Possible pivots

China in particular can pivot in ways that many other nations can’t. There are many countries that still crave Chinese goods and don’t care about U.S. approval. China has become adept at transferring production to third nations as a way to dodge the high tariffs imposed on them. U.S. consumers are already rebelling against inflation, and it stands to get much worse. Chinese producers are not in a position to do much about the tariff and trade war. 

The ”bad” set of scenarios assumes that many of these nations resist the process and refuse to give the concessions Trump wants—at least in the short term. The talk in these nations has been around finding alternatives to the U.S. market. Can they sell enough to Europe, Japan, Latin America, India, etc., to compensate for loss of the U.S. market? To be honest, there is no consumer like the U.S. consumer. Replacing the United States is impossible. 

Building new market relationships can help blunt the impact to a degree, but only partially, and, in a few months, the pressure to accommodate the United States will mount. This scenario holds that deals may start to appear towards the end of the third quarter, and that means several months of global pain. The nation could see inflation hit 4.5% or more, along with higher levels of joblessness and turmoil in the markets as the tariffs start to sink in. 

This one gets the support of maybe 20% of analysts. As nations explore their options, the United States continues to behave as if it holds all the cards, although that is not entirely true. It will take time to build new markets, just as it will take time to develop new supplier relationships. The United States will be hurt by the fact that it is no longer seen as a reliable trade partner, and many nations now would prefer to work with another country. 

Worst case scenarios

That leaves the “ugly” option, and this gets pretty grim. The foundation of this scenario is a real period of economic warfare between the United States and China. Hopefully, it would end with minimum damage to either country’s John Deere (forgive the Footloose reference).

But there is a great deal more at stake here. China is bent on replacing the United States as the world’s dominant economic and political (and even military) power. If China wants to engage in an all-out trade war, they have capabilities the United States lacks. It is a command economy and a dictatorship. They can impose hardships on the population and engage in financial manipulation that democracies can’t. This trade conflict could very easily escalate and turn very nasty. Consider what happens if China overtly attacks Taiwan or turns North Korea loose. This scenario has the support of 20% of analysts.

This is uncharted territory when it comes to trade. The United States has long been a bulwark of free trade support, and as this provided U.S. consumers with high-quality products at a low price, while it was accepted that U.S. production would be sacrificed to a degree. That sacrifice has been judged to have been too much, and there are now attempts to gain some of it back. But this comes at a cost as well—this time to the consumer.

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