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Tariff threats will do harm, even if Donald Trump does not impose them
The Economist | November 28, 2024
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3 key takeaways from the article
- It did not take long. Even before getting into office, Donald Trump fired the opening shots in a new trade war. The shock was not that he would add an extra tariff of 10% on Chinese goods rather it was news of tariffs of 25% on Canada and Mexico as soon as he returned to the White House.
- No one knows how much Mr Trump sees tariffs as negotiating tools, and how much he wants to turn away from trade. It might therefore be tempting to breathe a sigh of relief that these tariffs are a theatrical way to gain leverage.
- For decades the benefits of global trade were so widely accepted that retaliatory tariffs were limited to trade disputes. Today free trade has depressingly few advocates, and tariffs are used willy-nilly. Even if Mr Trump intends them only as a negotiating tactic, the fear that the gains from trade might easily be frittered away will hang over the world economy.
(Copyright lies with the publisher)
Topics: Global Trade, USA, China, Mexico, Canada, Inflation, Tariff
click for the extractive summary of the articleExtractive Summary of the Article | Read | Listen
It did not take long. Even before getting into office, Donald Trump fired the opening shots in a new trade war. On November 25th America’s president-elect posted on social media that he would add an extra tariff of 10% on Chinese goods. But the shock was news of tariffs of 25% on Canada and Mexico as soon as he returned to the White House. These, he thundered, would remain in place until the two countries clamped down on drugs and migrants illegally crossing the border.
If they are imposed, the tariffs will hurt American consumers most of all. The North American supply chain is integrated; nearly $1trn-worth of goods crossed the northern and southern borders of the United States last year. Half of America’s fruit and vegetables come from its two neighbours. And more than half the pickup trucks sold by GM and Stellantis in the United States are made in Canada or Mexico, which is why the firms’ share prices fell by 9% and 5%, respectively, on the day after Mr Trump’s announcement. Goldman Sachs thinks the tariffs could raise core consumer prices, which exclude food and energy, by as much as 0.9%.
No one knows how much Mr Trump sees tariffs as negotiating tools, and how much he wants to turn away from trade. It might therefore be tempting to breathe a sigh of relief that these tariffs are a theatrical way to gain leverage. The trouble, though, is that you cannot bank on any of this. Mr Trump could still seek to re-engineer the global trading system using steeper and wider-ranging tariffs.
Moreover, if Mr Trump routinely uses the threat of tariffs whenever he wants countries to do his bidding, they could spiral out of control. Mexico has warned of retaliation. And the more tariff threats are repeated, the greater the danger of miscalculation. If threats are never carried through, they will lose their power. Ultimately that is likely to force Mr Trump to show that he means what he says.
For decades the benefits of global trade were so widely accepted that retaliatory tariffs were limited to trade disputes. Today free trade has depressingly few advocates, and tariffs are used willy-nilly. Even if Mr Trump intends them only as a negotiating tactic, the fear that the gains from trade might easily be frittered away will hang over the world economy.
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