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Folly of using trade tariffs to achieve almost any international goal

AFTER raising economic uncertainty and unnerving the financial markets for close to two weeks, US president Donald Trump announced last Friday that he was "indefinitely suspending" his May 30 threat to unilaterally raise tariffs up to 25 per cent on American imports from Mexico as part of an effort to punish it for allegedly failing to end illegal immigration across its border into the United States.

According to the White House, Mr Trump decided not to launch a major trade war against its southern neighbour and key strategic ally and economic partner after Mexico agreed to increase efforts to control the flow of migrants from Central America and in particular to hold those seeking US entry inside Mexico until their claims have been processed.

If indeed Mexico carries out its commitments under the pact with Washington, it is possible that the migrant wave from Central America would be reduced, and the Trump administration could claim victory in its efforts to block illegal immigration into the US.

The problem is that Mr Trump is also likely to declare that the deal with Mexico demonstrated that its trade policies are working - if one defines "trade policy" as the use of tariffs as a weapon in trying to resolve conflicts over non-trade issues.

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In fact, Mr Trump has already tweeted that if Mexico does not deliver concrete results in controlling the migrant flow from Central America, the White House would not hesitate to renew its threat to impose tariffs on its neighbour with which it has just concluded an agreement on a revised North American free trade accord that includes also Canada.

Even more worrying is the possibility that Mr Trump - energised by his "victory" in using trade policy in the immigration dispute with Mexico, would now be less inclined to conclude a trade deal with China and more inclined to carry out his threat of of 25 per cent tariffs on European and Japanese autos.

No one would challenge the notion that Washington has the right to take a tough stand during trade negotiations, including by threatening to employ tariffs against its economic partners, which is the way almost all US administrations have behaved in the past.

But under President Trump the lines that separated trade policy from diplomacy and national security issues seem to have disappeared, with the White House operating under the assumption it can use tariffs as a tool to achieve almost any international goal, while at the same time justifying its aggressive trade policies, like the decision to block China's Huawei from buying US products, on the basis of national security considerations.

According to the economic nationalists in the White House, this strategy would not only help Washington to extract economic concessions from its trade partners. As they see it, employing the full force of America's economic might, even if that interferes with the goal of maintaining an open global trade system, is a legitimate way of protecting US national interests.

From that perspective, employing tariffs is not so different from using missiles to force other nations to accept American dictates. But the long-term costs of such an approach could be very high, since it creates a climate of global instability and endangers US relations with close allies, like Mexico, while threatening to escalate tensions with competitors like China. In that case, Washington may win a battle, but could end up losing the war.