Trump’s tariff strategy may trigger global trade wars, harming US reputation and causing widespread economic damage
LONDON: “Tariff”, Donald Trump repeatedly said throughout his 2024 campaign, “is the most beautiful word in the dictionary. I love tariffs. I think they’re gonna make us rich.” True to his word, within hours of returning to the Oval Office Trump signed into effect tariffs of 25 percent on all imports from Canada and Mexico, as well as an extra 10 percent on products from China. The immediate reaction was predictable. Canada threatened to apply 25 percent tariffs on $155 billion of American goods, from orange juice to appliances to car parts and threatened non-tariff measures relating to energy and procurement. Mexico’s President Claudia Sheinbaum immediately ordered retaliatory tariffs on imports from the US, claiming that Trump’s tariffs were a “flagrant violation of the US-Mexico-Canada Agreement.
The US is by far Mexico’s most important foreign market. In 2023 Mexico overtook China as top destination for US exports, accounting for more than $322 billion, while the US imported more than $475 billion worth of Mexican products. Almost a third of Mexico’s GDP depends directly on exports to the US. Canada’s trade with the US, which crosses all industries, is said to be the largest in the world and is vital to both countries. In 2023, goods and services trade between the two countries amounted to $923 billion. US exports were $441 billion, while imports were $482 billion, resulting in a trade deficit of $41 billion in favour of Canada. Tariffs of 25 percent, if ever applied, will therefore have a dramatic effect on trade between the US and its neighbours.
China, whose relationship with the US has become more hostile over the past decade, initially remained silent, possibly because Trump’s announcement coincided with the Chinese New Year. Moments after the tariffs came into effect on Tuesday; however, China swiftly announced an anti-trust investigation into Google together with a 15 percent tariff on coal and liquefied natural gas, and 10 percent on crude oil and various equipment. Ominously for the US, China’s commerce ministry announced at the same time that to “safeguard national security interests”, the country was imposing export controls on a raft of rare metals, key components for many electrical products and military equipment manufactured in the US. Overall, though, China’s targeted goods represent only about $20 billion (about 12 percent) worth of annual imports from the US, a far cry from the more than $450 billion worth of Chinese goods being targeted by the US. Experts believe that China had carefully calibrated its response in order to send a message to US audiences without inflicting too much damage. On Tuesday, Trump downplayed China’s retaliation, telling reporters “It’s fine, it’s fine. We’re going to do very well against China and against everyone else.”
So why is Donald Trump, the “disrupter-in-chief” as he is becoming known around the world, endangering world trade in this way? In part, it’s because he enjoys playing the part of a macho dealmaker. Ever since he appeared on the world stage, first as a reality game-show host and then politician, Trump has bathed in the image of a strong deal-maker, dominating over his opponents. Take a look at the White House press releases last week, crafted to glorify his bold action in comparison with the miserable failure of his predecessor, Joe Biden. “President Trump is taking bold (sic) action to hold Mexico, Canada and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country”, read the release on 1 February. It went on. “Previous Administrations failed to fully leverage America’s economic position as a tool to secure our borders against illegal immigration and combat the scourge of fentanyl, preferring to let the problem fester.” So the evidence is clear. Under Trump 2.0, trade will be used as a weapon of war, or as the press release put it diplomatically, “under America First Policy, trade is a critical component in national security.”
Success came early when in another spat; Columbia gave in to threats from Trump over migrants deported from the US. Initially, Columbia’s President Petro barred two military planes, carrying Columbian nationals deported from the US, from landing. The threat of punitive tariffs from America quickly persuaded him to change his mind, the planes landed and a trade war between the two countries, which would have been catastrophic for Columbia, was averted. Both Mexico and Canada have also been given a last minute reprieve from Trump’s tariffs, having initially displayed some bravado. After phone calls with Canada’s Justin Trudeau and Mexico’s Claudia Sheinbaum, Trump struck a deal and the tariffs were postponed by a month. Trudeau conceded to appointing a ‘fentanyl czar’ to focus on fighting organised drug crime. For her part, Sheinbaum pledged tighter border controls, with an emphasis on tackling drug trafficking.
Trump has repeatedly said that tariffs on Chinese imports are necessary to pressure China to crack down on fentanyl smuggling into the United States via Mexican drug gangs. He has accused China of being the source of precursor chemicals used to make the addictive opioid. Beijing has claimed to have made efforts to restrict the flow of fentanyl abroad and to squash its domestic industry, describing the drug crisis which kills thousands of Americans every year as America’s problem. All eyes will be on China’s President, Xi Jinping in the next few months, as China’s relative restraint in its initial response has raised the question of why it responded the way it did.
At first glance, China appears to have got off rather lightly by comparison with Canada and Mexico, and its sanguine response may indicate that Beijing is fully aware that it can deploy other retaliatory measures. For example, China owns $769 billion worth of US Treasury bonds and dumping those aggressively would push up America’s borrowing costs significantly and cause mayhem in Wall Street. In any case, Beijing has become accustomed to US aggression over many years, dating back to Trump 1.0, and has taken action to de-risk their position by shifting their supply chains away from China. There has been heavy Chinese investment in Vietnam, Malaysia and Thailand in particular and of course Mexico, as a way of sidestepping tariffs.
But look closely at what actually happened last week. Both Canada’s and Mexico’s concessions to Trump’s aggression were largely cosmetic. Canada’s $1.3 billion border plan was already in place before Trump took office, and the extra troops Mexico is sending to the border are miniscule and unlikely to work any better than a similar effort in 2019. The claim of stopping fentanyl was clearly just a pretext, especially in the case of Canada, since most of the fentanyl flows from America into Canada, not the other way round! But both countries allowed the Donald to claim a win for the US without putting Americans through the pain of higher prices because of tariffs. Trump covered up his retreat with the assertion that his threat had pushed America’s neighbours into sending resources to combat drug and human trafficking on its borders when in fact they were already doing it.
The greatest concern about Trump’s efforts to display a macho deal-making image is the damage he is doing to America’s reputation as a reliable trading partner. Trump is not interested in rules or alliances and has demonstrated that he is prepared to break every deal and betray every ally. Even deals that he himself negotiated, such as the 2020 US-Mexico-Canada Agreement, have been ignored in his attempt to display his muscle.
Speaking at a 2016 rally in Albany, New York, then-candidate Donald Trump told supporters that under his leadership America would score so many victories that people would get tired of all the winning. “Please, please it’s too much winning, we can’t take any more. Mr. President it’s too much,” they would cry out. What Donald Trump fails to understand is that a continuous ‘win’ for him could well turn out to be a major ‘loss’ for America. In the short term he might be able to get away with it, but if he persists, his victories could well turn into trade wars that nobody wants and in which everyone loses.
* John Dobson is a former British diplomat, who also worked in UK Prime Minister John Major’s office between 1995 and 1998. He is currently a visiting fellow at the University of Plymouth.