Trump Trade War: New Tariffs on Drugs, Trucks, and Furniture Raise Inflation Risks

Shifting Trade Deals and Rising Risks

Trump’s administration signed trade deals this summer with Japan, the EU, and South Korea to ease some tariffs. However, the latest measures raise doubts about the extent of protection those agreements provide. The White House says it will honor 15% caps on tariffs for patented drugs from countries with specific deals, but South Korea has no such provision for cars. This leaves its auto exports exposed to a 27.5% total US tariff.

Moreover, Britain reached its first trade deal with Trump in May, which included a 10% base tariff rate, but did not specify drug duties. Branded drugs from Britain now face the full 100% duty. U.K. officials are seeking concessions, including higher payments to the National Health Service, to ease the impact. Without clear documentation, trading partners face uncertainty about which products will be most affected and which may be exempt. This unpredictability complicates supply planning for global companies.

Winners and Losers from Trump’s New Tariffs

The new tariffs create a mixed landscape for businesses and investors. U.S.-based heavy-duty truck makers, such as Paccar Inc. (PCAR) and Freightliner, could gain from reduced foreign competition. On the other hand, shares of German truck makers Daimler Truck and Traton dropped as the levies eroded their U.S. competitiveness.

Moreover, pharmaceuticals show a similar divide. Drugmakers without U.S. plants face steep duties, while companies like Roche Holding and Novartis (NVS), which have invested in U.S. production, gain a partial shield.

Meanwhile, furniture imports, which account for 60% of imports from Vietnam and China, will face sharp cost increases. This will potentially boost domestic producers like La-Z-Boy and Ethan Allen, but put pressure on retailers that rely on imports.

The stock markets initially shrugged off the news. U.S. and European pharmaceutical stocks held steady, while U.S. equities traded flat amid mixed economic data. However, rising tariffs could lead to inflationary pressures and weigh on global growth if the measures persist. For now, investors may keep calm and carry on, but prolonged trade friction could eventually shift sentiment.