Everyone needs to take a deep breath and wait to see what Trump's actual play is on tariffs. His cabinet is made up of a bunch of very smart businessmen who surely all know that trade wars are not a good thing. We also know that Trump's style of negotiations is always to start the discussion with some extreme position and then back off from there. Typical New York developer style.

There is no question the US has done some really dumb trade deals over the decades, and is in an undesirable situation on certain products. The Japanese and Chinese have erected non-tariff barriers of all sorts of regulations and other requirements which make it nearly impossible for some US products to compete. Countries levy VAT on many products coming in from the US which can add up to 20% in some cases to the cost of American products. The Chinese demand access to the technology, or other business information to let in a US company which keeps out some US companies. All of these things are worse than tariffs in that it is not just a matter of pricing, but these are outright bars to getting anything into the country in some cases. Or look at tech companies like Google and Facebook which are now being subject to all sorts of regulations and fines in the EU, like Apple is in Ireland. These are clearly meant to create a non competitive cost to American tech giants because there are no similar competitors in the EU.

It is yet unclear what will happen, and how it will all unfold. In the past the US has backed down when faced with retaliation when we have imposed steel tariffs, and so US steel companies suffered. The Chinese use their giant state owned companies as a place to employ millions of their people even though the companies operate very inefficiently and poorly. The Chinese government just subsidizes them to keep people employed.  It is the main reason there is so much debt in China. Much of it has gone to the state enterprises. As a result the Chinese sell steel and other goods at below actual cost in many cases, and are dumping. Apparently the WTO has not been an effective governor of this sort of non competitive action.

Presumably Trump is just starting a negotiation. He has already told the EU if they start a retaliation, he will up the ante. That is not what the EU or anyone else expected the response to be from the US. They thought they could threaten a trade war and Trump would back down. You would have thought by now everyone would have realized that is exactly the wrong way to deal with him and his cabinet. They are all sophisticated deal guys who understand you have to be willing to get up from the table to get what you want, and to hit back when threatened. I believe this is going to get very nasty very fast, and Trump will impose more taxes and pain on the EU if they really try to retaliate. He is right in that the US is a market everyone else needs more than we need any other country or the EU. They will not know what to do when he does add taxes onto European cars. That is not the response they think they will get. They think by choosing products in Wisconsin and Tennessee that will get the political pressure on Trump to back down.  They really do not get it at all. Workers in those states, I believe, will love what he is doing on tariffs. They feel he is looking out for them as nobody else has in the past. Tariffs on products from the fly over states by the EU will just get more votes for Trump in 2020.

In the end there will be negotiations to get the US trade deficit down.  The EU, China and Japan will back down to some degree. Trump will look tough to the mainstream voters in fly over states and he will have met another of his campaign promises. It will be ugly for a while, but in the end it will all settle out. This is not Smoot Hawley and this is not 1929. The US economy is on a massive roll and will continue to be. It is a perfect time for doing this. Electrolux will be back since they lose even more by not having a factory here. It was just stupid grand standing by them.

For CRE, this will mean nothing other than having to listen to the press and various politicians and economists wring their hands, and claim the damage will be terrible. It will not. The world is now just getting treated to how a bunch of deal guys really operate instead of how politicians fold in these situations.

The views expressed here are those of the author and not ALM Real Estate Media.