Donald Trump has never been a person who respects convention. So last week, when he made threats to Mexico, Canada and China about what his trade policy is going to be when he is inaugurated on January 20, few were surprised. Presidents-elect are not supposed to announce policies in advance, but he doesn’t care about such niceties.
Strangely enough, however, his announcement was actually quite reassuring, probably more reassuring than he meant it to be.
How could a threat to impose 25% tariffs on all goods imports from America’s two biggest and closest trading partners on the first day of his administration be considered reassuring? How could a threat to impose an extra 10% tariff on imports from China be reassuring? The answer lies in the apparent motivation for these threats.
The big debate concerning Trump’s stated love of tariffs, a word he described during the election campaign as “the most beautiful word in the dictionary,” is whether he sees these import taxes as tools of economic and fiscal policy or as weapons he can use as leverage in negotiations. If they are tools of economic and fiscal policy, the tariffs will be widespread and long-lasting. If they are negotiating weapons, they will be targeted on specific countries and could be fairly short-lived.
The reason why this week’s threats were quite reassuring is that they fell into the second category, of tariffs as negotiating weapons. And the targets of those threatened weapons were so vague and implausible that Mexico, Canada and China should all find it quite easy to respond to them.
All three threats really consisted of an attempt to blame foreign countries for an American domestic problem. Trump claimed that the threats against Mexico and Canada were designed to put pressure on those countries to stop illegal immigration into the US over their borders, and the threat against China was to pressure that country to stop the production and export of the fentanyl drug that has caused 100,000 deaths per year in America through overdoses.
None of these countries can do the things that are being asked of them. China has already put tighter controls on fentanyl and its ingredients, but as with other illegal drugs it can be supplied by many sources and is extremely difficult to clamp down on. Deaths in the US from fentanyl abuse fell anyway last year by 20%, according to the Financial Times. Illegal immigration across the Canadian border is already small, and it is unclear why Mexico could be any better at policing the long US-Mexico border than the US itself is.
The demands are empty. It is likely that Trump just wants to extract a small concession from each of these governments so that he can declare a kind of victory and display early in his administration just how powerful he is and how under his leadership America can boss other countries around.
The true worry about Trump and tariffs does not lie in this sort of bullying behavior. Nor does it lie in his use of tariffs against particular countries, such as China. Threats of the sort he made this week can be dealt with, just as they were during his first term in office. High tariffs against just one country, even one as big as China, would simply divert trade through other routes rather than blocking it altogether. That is what happened after Trump imposed 25% tariffs on Chinese goods in 2018, and it would happen again if he repeats this sort of policy.
The true worry
The true worry is that he might want to use tariffs as a genuine tool of economic and fiscal policy, believing that imposing high tariff barriers around America will raise fiscal revenues, promote domestic manufacturing and eliminate America’s trade deficits. If so, then his campaign promise of implementing a 10% or 20% universal tariff – on goods imports from all countries except those on which even higher tariffs are imposed – would be carried out.
This would not be a negotiating tactic, designed to bully Europe into spending more on defense or on buying more American liquefied natural gas. It would be a deeply held philosophy of deglobalization, reducing the commercial connections between America and the rest of the world in the belief that doing so would make the US more prosperous and stronger. Such a policy would be sustained until at least the end of Trump’s term in 2028 and would essentially make the existing rules of the world trading system, policed by the World Trade Organization in Geneva, obsolete (or, at best, in suspension).
There is currently no way of knowing whether Trump intends to pursue this deglobalization philosophy. His nomination of Scott Bessent, a fairly orthodox investment fund manager, as Treasury secretary implies that he will not attempt such a radical change in economic policy. However, his nominations for Commerce secretary (Howard Lutnick, another financier) and US trade representative (Jamieson Greer, a lawyer) suggest that he might, for those men have voiced strong support for broad tariffs.
The big difficulty Trump, Lutnick and Greer would face in imposing a 10% or 20% universal tariff is that manufacturing industry in America typically relies on imported supplies of components and raw materials. While some manufacturers might welcome protection against foreign competition, others, including in the defense industry, would see their input costs rise sharply as a result. Replacing international supply chains with domestic ones would be disruptive, time-consuming, and costly and often might not even be possible.
The best hope is that any proposal to impose a universal tariff would be met with a tsunami of lobbying for special exemptions, one sufficient to delay the policy or perhaps to discredit it altogether.
This week’s tariff threats were all about negotiating with foreign governments. A broad tariff would involve a huge amount of negotiation with American companies, including even Trump’s supposed best friend, Elon Musk, whose Tesla electric vehicle business, Starlink satellite internet firm and SpaceX rocket-launcher all rely on global markets and global supply chains.
The negotiations with foreigners could prove a lot easier than negotiations with Americans.
Formerly editor-in-chief of The Economist, Bill Emmott is currently chairman of the Japan Society of the UK, the International Institute for Strategic Studies and the International Trade Institute.
This article, originally published on Bill Emmott’s Global View, is the English original of an article published December 2 in Italian by La Stampa. It is republished with permission.
