Shooting oneself in the foot: Trump fires first shots in trade war
SO HE was not bluffing. Following through with his threat to impose high tariffs on Mexico, Canada and China, US President Donald Trump announced on Saturday (Feb 1) a wave of tariffs against America’s three largest trading partners – who also happen to be its two North American neighbours and its East Asian global adversary.
Invoking emergency economic powers never before used for tariffs, the White House explained that they are meant to compel the three governments to crack down on illegal immigration and drugs reaching the US. Trump signed three executive orders establishing the measures.
Posting on his Truth Social platform, Trump insisted that he was taking the step “because of the major threat of illegal aliens and deadly drugs killing our citizens, including fentanyl”.
“We don’t need the products that they have,” Trump said in reference to Canada and Mexico. “We have all the oil you need. We have all the trees you need, meaning the lumber.”
Under the decision, the US will impose a 25 per cent border tax on all imports from Canada and Mexico, a 10 per cent tariff on energy products from Canada, and a 10 per cent additional tariff on imports from China. They will remain in place until the three countries block the illicit fentanyl reaching the US.
The launching of a trade offensive by the Trump administration has drawn sharp responses from the governments of Canada and Mexico as well as from American business and labour groups, who warn of the impact the tariffs would have on the US economy and, in particular, the loss of purchasing power by consumers.
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Trump’s move makes it clear that he is intent on using American power, including economic coercion, to force both allies and adversaries to accept his dictates.
After Colombia refused to accept US military flights of deported migrants last week, Trump threatened harsh trade sanctions against the country, leading Colombia to back down.
Declaring what amounted to economic war against America’s three major trading partners that are not expected to back down quickly to his ultimatum, Trump has set the stage for a continental trade war with Canada and Mexico, and widening economic frictions with China.
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On Saturday, Canadian Prime Minister Justin Trudeau said Canada would retaliate by imposing 25 per cent tariffs on more than US$100 billion of US products, including furniture and clothing. “We’ll always do what’s necessary to defend Canada and Canadians,” Trudeau stated.
Trump, it should be recalled, proposed recently that Canada join the US as the 51st state.
Mexican President Claudia Sheinbaum accused the US of engaging in “slander” for alleging that Mexico’s government is allied with criminal groups, and vowed that her country would retaliate with tariffs and non-tariff measures.
China strongly opposed the new US tariffs and said it would take countermeasures.
On Friday, Trump seemed to suggest that the tariffs against Mexico, Canada and China marked the beginning of a wider trade war, with the US planning to impose tariffs on computer chips, pharmaceuticals, steel and aluminium this month.
“That’ll happen fairly soon,” the president told reporters, indicating that he also wanted to raise tariffs on the European Union “which treated us horribly”.
If, as expected, the three governments retaliate with their own tariffs on US exports, the Trump administration would likely increase tariff rates in response.
In practical terms, the notion that Mexico, Canada and China would be able to end the flow of drugs into the US does not make much sense. In reality, it will only end when Americans stop using drugs.
As Sheinbaum pointed out, “If the US government and its agencies want to do something about the abuse of fentanyl in their country, they would, for example, combat the sale of drugs in their own cities, which they don’t do.”
Which raises the question: Why is Trump imposing these tariffs? One explanation is that it is just a negotiating tactic, aimed at gaining concessions from Canada and Mexico over border controls from the two countries.
Another suggestion is that Trump believes that higher US tariffs would encourage manufacturers to make their products in the US with American workers, rather than abroad.
In a way, by imposing tariffs on Canada and Mexico, Trump is tearing up the United States-Mexico-Canada Agreement (USMCA), ironically a major achievement of his first term in office.
The imposition of the tariffs threatens disruption for regional supply chains that have become intertwined in recent years, in particular in the automotive sector, turning US auto manufacturing into a North American industry. It would become less competitive without this trade.
Since the USMCA took effect, US trade with Mexico has grown and in that context, Trump administration officials have expressed concern over the presence in Mexico of Chinese manufacturers, and the possibility that they would use Mexico as a tariff-free back door to the US market.
Overall, American companies and consumers purchased last year from the two countries about US$1.3 trillion worth of merchandise, including electronics, cars and clothing.
Mexico is the top provider of imported beer, while Canada supplies 60 per cent of US crude oil imports. The tariffs are expected to result in higher prices for these and other products, while the ensuing tit-for-tat tariff war could harm key export markets for US manufacturers and farmers.
Yet, Trump administration officials believe that in a trade war, Mexico and Canada stand to lose more than a US that is less dependent on trade.
In any case, Trump, the economic nationalist, seems to have embraced a vision of an America that uses tariffs not only to press other countries to obey its commands, but also as a source of revenue.
In control of North America and the rest of the hemisphere, including Greenland and the Panama Canal, Trump’s America is supposed to be an economic colossus that exerts enormous influence by allowing other countries – whether it is Colombia, Canada or Mexico – access to its huge market, and that makes deals with the other global titan, China.
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