President-elect Donald Trump, who will begin his second term on January 20, 2025, has sparked concern in many countries by promising to impose a “universal” baseline customs duty of 10 or 20% on all imports to the United States, and even 25% on products from Canada and Mexico (the United States’ top trading partner in 2024). An additional tax of 10% or more could also be applied to products from China. A 100% duty on all BRICS nations has even been mentioned!
Reindustrialization or inflation?
According to Presient-elect, these measures have both a political goal (putting pressure on some countries) and an economic goal (fighting against the industrial and trade decline of the United States).
On the macroeconomic level, an indiscriminate increase in tariffs — affecting both products manufactured in the United States and others for which there is no local producer — would be an experiment that is, to say the least, quite original.
“An increase in customs duties would lead to an appreciation of the dollar which would cancel out the gain in competitiveness,” forecasts Sylvain Bersinger, chief economist at Asterès, a French market intelligence firm, in a note published in November. Thus, neither reindustrialization nor reduction of the trade deficit is to be expected in the short term.
The increase in duties would also lead to an increase in consumer prices (due to a hike in the price of imported goods or to products manufactured in the country at a higher price than imports) which would lead the Fed to increase its rates, and therefore make investments in dollars more attractive.
In fact, any possible reindustrialization of the United States will first require major investments. To achieve this, a targeted increase in tariffs could be a useful tool, but certainly not the only and most direct lever.
Supply chains disruption?
As far as supply chains are concerned, the impact of these new tariffs will depend largely on their level and geographical scope, on which Donald Trump has made multiple proposals.
Since Donald Trump’s first term, the US-China economy decoupling has been underway but is far from being completed. Tariffs implemented by the last two presidential administrations have accelerated a move to diversify sourcing outside of China. Southeast Asia and Mexico were the regions that benefited the most from the shift.
Nevertheless, US industries with complex cross-border logistics — such as chemicals, cosmetics and personal care, may face increased costs — particularly if heavy tariffs are imposed on Mexico.
In the short term, however, higher duties will not lead to reshoring in the segments (such as packaging) where there are few or no American suppliers. Indeed, moving sourcing into new countries is far from easy, and it can take at least five years to change a company’s sourcing network, in particular where new factories are needed.
For several years, many of our interviewees have been predicting a regionalization of supply chains. The biggest players have thus chosen to settle on several continents. Although there are few global suppliers in the cosmetics industry, many are present on both sides of the Atlantic.
Slowdown in international trade
For those with no US production base, more difficult access to the US market could affect growth prospects.
Over the past two decades, the European cosmetics industry has relied heavily on the US market to compensate for its own weak market.
US protectionism will likely result in a decline in international trade, which will worsen if the Chinese economy is to sink further into crisis. The drop in global trade could reach 0.3% to 3% depending on the level and geographic scope of the new tariffs and on the extent of retaliations from other countries.
A reorganization of global trade could benefit the BRICS group, which Indonesia has just joined. With the possible exception of China.
The signing of the free trade agreement between the European Union and Mercosur could thus open up new opportunities for both zones. For the European cosmetics industry, a market like Brazil offers huge growth potential. But the environmental cost is also likely to be huge.
While Donald Trump’s election was one of the key events of 2024, let’s not forget this other fact: it is also all but certain that 2024 will go down as the hottest year on record!
