‘America is back’, said US president Donald Trump in last week’s address to Congress. Perhaps he meant back to the McKinley Tariff of 1890? Or back to the Smoot-Hawley Act and the trade wars of the 1930s? It would certainly seem that way now that Trump has introduced his ‘beautiful’ tariffs against imports from Canada, Mexico and other countries.
Trump first announced tariffs of 25 per cent on imports from Canada and Mexico at the beginning of February, but two days later, he postponed them. Then, on 4 March, he imposed tariffs on Canada and Mexico again, plus a 10 per cent tariff on all imports from China. In response, the stock markets tanked, US auto executives lobbied Trump to change course and the impacted countries promised to retaliate. And so, once again, Trump suspended the tariffs on cars and many other goods from Canada and Mexico, giving them a one month reprieve. At the same time, he maintained tariffs on Chinese goods and threatened to apply tariffs to all imports from the EU and other countries, starting on 2 April.
With these on-again, off-again tariffs, and Trump’s preference for bombastic deal-making, it would be easy to see his moves as simply crude negotiating ploys, just temporary tactics that are nothing to worry that much about. Yet it now seems Trump is dead serious about using tariffs more broadly, and that poses a significant risk to the world economy, as well as to US workers’ living standards. While we are not on the verge of a 1930s-style all-out trade war or Great Depression, Trump is undoubtedly playing with fire. Tariffs are as much a political weapon as an economic tool, and, if not handled carefully, can turn allies into adversaries.
We can already see this happening north of the American border. Canada was prepared to levy $87 billion in retaliatory tariffs until Trump’s pause, and still has kept in place $21 billion in tariffs on selected goods like fruits and vegetables. Ontario’s leader has threatened a 25 per cent tax on electricity sold to the US. Trump’s ploy has led Canadians to rally around the Maple Leaf flag. They now boo the American national anthem before the start of hockey games. Trump has pointlessly turned the populist Conservative leader Pierre Poilievre, who is odds on to win the next election, into an opponent. Poilievre says Canada will ‘fight back’ and ‘put Canada first’.
While Trump raves about the benefits of tariffs for the US, his moves have already started to damage the domestic economy. Trump now claims to not care about a declining stock market (despite continually taking credit for its rise in his first term), but Americans do care. After all, many have their retirement savings tied up in US stocks. The dollar has weakened, consumer confidence has dropped, and the odds of stagflation – stagnant growth combined with inflation – have increased. In an interview with Fox News yesterday, Trump himself could not rule out an economic recession. At a minimum, Trump’s tariff policy adds risks and uncertainties that will dampen US companies’ willingness to invest.
Higher prices from tariffs would hit Americans’ living standards. Democrats have been quick to sound the alarm, warning of spiralling inflation, but this is premature. Consumer prices actually fell in January and broad-based inflation levels depend on more factors than tariffs. Still, prices will certainly rise on specific tariffed goods – particularly fruit and vegetables, energy, cars (the average cost of a pickup truck is estimated to rise by $8,000) – and Americans will feel that.
Trump has given multiple reasons for introducing tariffs, leaving many wondering what his real endgame is. The legal justification for the tariffs on Canada and Mexico is based on stopping migrants and fentanyl-trafficking across the borders. But both countries have increased their enforcement efforts and still the tariff threat remains. Illegal crossings at the southern border have plummeted, and Mexico has extradited drug bosses.
Trump also complains that, in terms of trade policy, the US has been ‘ripped off’ by other countries. But that would surely be an argument for engaging in trade negotiations, or for at least stating your demands before firing the first shots. Indeed, by introducing tariffs, Trump is effectively undermining the US-Mexico-Canada Agreement (USMCA), which his own administration negotiated in his first term. It would be much wiser to renegotiate the USMCA than start a trade war.
More and more, Trump presents tariffs as a wonderful thing in themselves, rather than a negotiating tactic. ‘Tariffs are not just about protecting American jobs’, he said in his speech to Congress last week. ‘They’re about protecting the soul of our country. Tariffs are about making America rich again and making America great again.’ But there is no historical evidence that tariffs can bring about economic transformation – let alone restore the ‘soul’ of a country. Tariffs are a tax, and excessive taxes stifle growth. The modern world economy is highly integrated. The components of a North American car cross borders multiple times before the final product is made. This means tariffs will likely hurt the very industries Trump says he wants to help.
The president promises that any pain will be short-lived. ‘There will be a little disturbance, but we’re okay with that’, he told Congress. But companies can’t turn on a dime and adjust – it could take many years to bring significant manufacturing back to the US and establish new supply chains. Trump’s tariff-led approach would not only disrupt existing production and distribution networks, but also, if kept in place, would create a less efficient and less dynamic economy. Any success for the US economy would come at the expense of other countries – Canada and Mexico may be too vulnerable to withstand Trump’s pressure. But bully-thy-neighbour is not a way to win friends and influence people – it’s a way to create enemies.
Trump rode to electoral victory by promising to lift up the American worker, but tariffs won’t do that. He claims tariffs will protect jobs, but his policy will create winners and losers – and those thrown out of work won’t be thanking him. Higher prices on tariffed goods will hit real incomes. If there is one thing that voters hated most about the Biden administration it was how inflation cut their living standards. They’ve put their trust in Trump, but that trust will be eroded quickly if there is any sign of going back to the bad old Biden days.
A big reason Trump won a second term is that he was viewed as more normal than the Democrats. Americans wanted a reprieve from the craziness of nine per cent inflation, Venezuelan gangs occupying apartment buildings and males taking away trophies from women’s athletic events. But with his tariff policy, Trump risks creating needless instability. which could easily negate the popularity he has earned from his initial executive orders on things like migration, DEI and gender ideology. With tariffs, Trump appears to be bringing back the chaos that dominated his first term. For a politician that has shown a pragmatic streak recently, he has become strangely ideological and indifferent to the consequences when it comes to tariffs.
Trump and his movement have brought the pursuit of national and working-class interests to the forefront of US politics. That has been a necessary corrective to the elitist globalism our leaders have promoted for decades. While promoting national sovereignty is a positive, not everything that Trump claims is in the national interest is truly so – and tariffs certainly are not.
Trump needs to back off from his obsession with tariffs, or he risks squandering what put him in power and his success depends upon – the support of working Americans.
Sean Collins is a writer based in New York. Visit his blog, The American Situation.