Donald Trump fired a first shot in a trade war that could engulf the entire world and lead to higher prices for Americans.
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By imposing tariffs on Canada, Mexico, and China, Donald Trump on Saturday night embarked on a high-stakes gamble with the wallets of American consumers. He expects the three countries to do his bidding; the rest of the world hopes that they won’t be bullied into submission, and that the American president realizes that starting a global trade war is a lose-lose proposition.
There is a good chance that neither of these things will happen.
Canada, for example, will likely retaliate right away because it can’t afford for its most important trading partner to commit an act of economic terrorism without responding… especially with an election coming up later this year.
And Trump doesn’t have enough sense to take a loss and move on.
But let’s start from the beginning.
On Saturday night, Trump followed through on his threat to impose a 25 percent tariff on most goods from Canada and Mexico, as well as 10 percent on goods from China.
The stated reason for this act of economic aggression was that the three countries are not doing enough to stem the flow of undocumented immigrants (in the case of Mexico and Canada) and illegal drugs into the US.
“Gang members, smugglers, human traffickers, and illicit drugs of all kinds have poured across our borders and into our communities,” he stated in an Executive Order. “Canada has played a central role in these challenges, including by failing to devote sufficient attention and resources or meaningfully coordinate with United States law enforcement partners to effectively stem the tide of illicit drugs.”
Trump didn’t hold back, saying that “this failure to act on the part of Canada constitutes an unusual and extraordinary threat, which has its source in substantial part outside the United States, to the national security and foreign policy of the United States.”
The real reason is that Trump just doesn’t like trade deficits because he believes that they indicate that other countries are taking advantage of the US.
Therefore, it seems much more likely that he will double and triple down when the other countries take countermeasures.
The executive order says as much.
“Should Canada retaliate against the United States in response to this action through import duties on United States exports to Canada or similar measures, the President may increase or expand in scope the duties imposed under this order to ensure the efficacy of this action,” the order states.
In other words, Trump wants to be able to punish one of the US’s most important allies without them being allowed to respond.
That seems just as unlikely as Canada becoming the 51st state, which is another one of Trump’s fantasies.
Sure, that would hurt Canada (or Mexico, respectively) more, but the cost of doing nothing and letting the US extort the countries is higher.
The rest of the world will be watching. Because if Canada, Mexico, and China fold, everybody else will be next.
In his first term, Trump may still have felt constrained. However, as his first couple of weeks in office have shown, that’s no longer the case.
The only sign that this may not be the beginning of a full-blown trade war, and that Trump has some sense, is that the tariff on oil and gas from Canada is “only” 10 percent because the US needs it.
That is a tacit acknowledgement that larger tariffs on these products would result in price hikes that American consumers would feel almost immediately.
However, even with that reduced tariff, this trade war will be fought on their backs.
The nonpartisan Tax Foundation believes that Trump’s executive order will cost the average American household more than $800 and shrink the US’s economic output by 0.4 percent.
And that’s just the beginning.
Of course, there is always the chance that Trump realizes that he made a miscalculation and reverses course.
Just kidding.
Since that probably won’t happen, it may be time for Americans to tighten their belts. Because all of those lower prices that Trump promised them are not going to materialize any time soon.
