Donald Trump has yet to take office, but his trade war is shaping up. And he may have already lost.
Trump has threatened 25 percent tariffs on imports from Canada and Mexico and even higher duties on Chinese goods. Contrary to the classic “Seinfeld” bit, under Trump’s onerous trade tax regime, duties are not “doody.”
Trump has also insulted the foreign leaders he needs to deal with. Earlier this week, the president-elect called Canadian Prime Minister Justin Trudeau “Governor Justin Trudeau of the Great State of Canada” in a Truth Social post after threatening to annex our neighbor to the north. No one ever said that Trump was diplomatic and for good reason.
Trump’s actions and antics are sure to be applauded by his base, but The Former and Future Guy apparently fails to realize just how vulnerable the US is in a trade war. For example, even though the US currently produces more oil than any country in history, imports have also increased. This year oil imports from Canada also increased to a record 4.3 million barrels per day. Sixty percent of US oil imports come from Canada. Trump and MAGA may not have considered that fact in their quest for lower prices through trade wars.
Beyond oil, Canada, Mexico, and China are the US’s three largest trading partners for both imports and exports. Placing tariffs on imported goods will invite retaliation that will kill American export markets.
Two of these three trading partners signed a new trade treaty, the USMCA, with the US only four years ago under President [wait for it] Donald Trump. If Canada and Mexico are taking advantage of the US on trade, then Donald Trump, who presided over renegotiating and ratifying NAFTA, bears a large part of the blame.
It is unlikely that two neighboring countries who overhauled their trade deals with us just four years ago would be willing to reconsider renegotiating again so soon. Trump’s insults may quash any desire to renegotiate in addition to the fact that Mexico and Canada likely come to the realization that the US – Trump – cannot be trusted to honor any new deals,
If Trump was versed in the classics, he might channel Darth Vader’s line from “The Empire Strikes Back,” telling America’s trading partners, “I am altering the deal. Pray I don’t alter it further.”
Another aspect that Trump fails to recognize is that if he erects an economic wall around the US economy, our trading partners will have far more options for markets than we will. Mexican consumer goods and Canadian oil will have more buyers from countries without a 25 percent trade surtax than American exports which will have to run a gauntlet of retaliatory tariffs. A Europe trying to break its Russian oil habit would be happy to purchase oil from friendly Canada.
Or maybe Trump does realize that. Maybe his ultimate goal is to strangle America’s economic links to the world.
Whatever his ultimate goal, Vader-like ultimatums only work from a position of absolute power over adversaries. Donald Trump is not in such a position.
Becoming an insular, isolated nation will come with economic costs. As we saw in Trump’s first presidency, trade wars are not good for the economy. As I’ve pointed out before, American manufacturing and agriculture were hit hard by Trump’s first trade war.
As an already-lame duck, Trump has only four years to win the trade war, but China, his biggest target, is a repressive regime where popular discontent from economic pain can be suppressed. Even so, the Chinese government said this week that it would be willing to go deeper into debt to weather the tariff war, something that Trump would be hard pressed to do with a slim Republican majority in Congress that includes a faction of deficit hawks.
Beyond economic pain, there are national security issues. China dominates world markets for rare earth metals. This week, China announced a ban on the sale of several metals to the United States. Gallium and germanium are used in the manufacture of semiconductors, which have both civil and military applications, and antimony is used in military explosives.
American dependence on hostile countries for components of military hardware is a longstanding problem that has not been adequately addressed by either party, but picking a fight with a country that can choke off our ability to build military hardware is unwise in the extreme. The problem needs to be addressed, and it would be ideal to do so before starting a trade war – or worse, a shooting war – with the Chinese.
Unlike the first time around, China is expecting Trump’s economic aggression this time and has had years to prepare. The new ban on sales to the US indicates that they mean to take a more aggressive posture in the coming trade war.
That Trump is likely to lose the coming trade war is apparent even before it starts. When prices rise and the economy slows due to tariffs from both sides (to say nothing of Trump’s other radical actions), voters will veer back toward the Democrats in the 2026 midterms. On top of that, China is likely to take a harder line that could ultimately threaten American military readiness. Weakening the US both economically and militarily could play into China’s long-term goal of regaining Taiwan. Trump’s erratic economic behavior might also aid America’s rivals in replacing the dollar with a different world reserve currency, an action that would be disastrous for the debt-ridden American economy.
If you think a trade war couldn’t lead to a shooting war, it has happened more than once in history. A very well-known example is World War II. War between the US and Imperial Japan was caused at least in part by Japanese aggression in the Pacific in its quest for raw materials and markets and the American embargo in response. In many respects, US-China relations today parallel the old pre-war days.
One of the things you come here for is the pop culture references (as far as I know) so I’ll close with another one. When it comes to the brewing trade war, I’m reminded of the moral of the 1983 movie, “War Games.”
“The only winning move is not to play.”
He has always been a bully. And Bullies are mostly bluff and bluster. He doesn’t care about Americans. Too bad he has to come back to office for people to be reminded of this.Report
I remember people scoffing that Trump was getting thoroughly owned because China was “punishing” his trade policies by refusing to buy soybeans.
It turned out that the Chinese mostly used soybeans as pig fodder and there was a massive swine-flu epidemic in China in 2018, so the reduction in soybean orders had nothing to do with trade policy at all, but then 2020 happened and everyone forgot about it.Report
Intriguing follow-up to that with a very #cyberpunkfuture touch: Chinese farmers were using drones to spread swine flu to other farmers’ herds, literally killing off the competition. This was discovered when airliners started having navigation trouble when flying over farmland; the pig herders were using jammers to interfere with this drone-spreading activity, and the jammers were affecting the airplanes’ radios.
https://www.scmp.com/news/china/society/article/3042991/china-flight-systems-jammed-pig-farms-african-swine-feverReport
Will JD Vance have an even tougher 2nd Term than his first?Report
I’m of two minds on the subject.
The optimistic take is that Trump is a known value now and his counterparties know that some symbolic gestures and lots of talking up Trump may be sufficient to buy him off.
The pessimistic take is that Trump did actually launch trade wars before and this time he has far less latitude for fishing up. Inflation was just recently tamped back down – if he launches a trade war it could go to pot enormously quickly. Perhaps it’ll go so bad that it’ll convince congress to rescind the executives unilateral authority to enact tariffs.Report
Yea I try not to be overly optimistic about this. Some stupid things are going to happen, it’s just a question of how stupid and when.
At the same time you get the sense that some deferential ring kissing can defang Trump, at least a little. That was how I interpreted the recent interactions with Macron. While I hesitate to compare personal experience to high stakes international negotiations I have dealt with people like Trump in my 15 odd years of handling commercial contracting. You go into a room or onto a call and some blow hard chews you out for 15 minutes. You make a tactical decision to either respond in kind or to listen patiently. Most of the time the end product is well within routine parameters, in spite of all the theatrics. I have occasionally put on the scary voice and played the role myself.Report
While a lot of Trump’s domestic supporters want him to do the things he says he will do – particularly on immigration – they also see his bluster as primarily designed to trigger the Libs, which is an outcome they view as almost as important.Report
I think the most important thing for the average conservative voter is that their leaders are seen as being contemptuous towards the right people. Few of them read the fine print or follow up on actual outcomes. Which to be clear isn’t intended to be a charitable reading, but rather a cynical one. At the end of the day most Americans of all stripes DGAF about anything beyond the superficial.
I do think reporting on some of these things would be better if more journalists had time in the private sector, seeing what things are actually like. Not because the private sector is somehow inherently better but because you deal with different kinds of people and personalities than in the upper tiers of government, prestige NGOs, and academic world. It doesn’t make people like Trump any less dangerous but it may add some perspective when you see there are jackasses like this all over the place.Report
He also had an interaction with Mexico that followed along the same lines:
Trump- I’mma gonna tarriff unless you cut off immigration and fentanyl lines to the US.
Sheinbaum- Ok, we’ll cut off immigration and fentanyl Mr. President. *does nothing*
Trump- Great conversation with Mexican President, trade war is off!
But, of course, when talk means nothing then it isn’t predictive of actions so who the fish knows what’ll actually happen.Report
Yea my above comment notwithstanding you get the sense that a whisper in the ear at the right (or wrong) moment can have him tearing up the previous arrangement or getting fixated on something else crazy. Which is also similar to the worst C suite execs I’ve interacted with.Report
First, the error. The USMCA is not being renegotiated or part of this tariff threat. The ones for Canada and Mexico is all about them controlling the flow of illegal drugs, especially fentanyl, and illegal immigrants.
Next, as noted while Canada oil is 60% of US imports of oil (please note the term imports, Canada makes up only 24% of US refinery throughput), it is 97% of Canada’s exports and will hurt them much more were those exports to the US dry up as the US importers of oil switch to cheaper places. This is what the people here seem unable to understand. Just because something from one source increases that source’s cost, does not mean purchasers will pay that increase. Purchasers will scramble for cheaper alternatives.
A very basic example:
Widgets have three sources
Canada for 100
EMEA for 105
US for 110
US imposes a 25% tariff on Canada widgets. US purchasers are not going to spend 125 on Canada widgets. Instead they will purchase as much as they can from the EMEA and US. This raises their cost around 5-10%. Not great and they are ‘paying’ for the tariffs because of this increase, but not the full tariff amount nor for the actual tariff.
On the other side, did you scratch you head at the comment “Even so, the Chinese government said this week that it would be willing to go deeper into debt to weather the tariff war”? Wait if the US people were paying for these tariffs, why would China go into debt?
Lets replace China above with Canada from my example, Canada widget sellers scramble to sell their widgets in other markets since the US is not buying. But it is unlikely they can offset the full loss of the US market (the US bought 97% of all Canadian widgets). They have a large supply of widgets sitting in warehouses and they are in financial trouble. The Canadian government bails them out with government money so they do not go under as the Canadian widget makers sell into the US at a loss (say 80-85, with the cost of a Canadian widget being 90), but not as much of a loss if they sat on the widgets.
Of course Canada adds tariffs back and this process repeats in the opposite direction.
Now how much pain will it take for one side or the other to blink on the reasons for the tariffs?Report