Loading
IT DID NOT GMYour browser does not support the element.take long. Even before getting into office, 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 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 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. (Stellantis’s largest shareholder part-owns ’s parent company.) 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. He has already had a “wonderful conversation” with Claudia Sheinbaum, Mexico’s president. In 2019 he threatened levies of 25% on all Mexican goods, only to do nothing when Mexico and the United States reached a border deal. Throughout the first term, the cabinet tempered his protectionist instincts. So did the stockmarket, which he saw as a barometer of public approval.This time, too, Mr Trump could curb his mercantilist enthusiasm. He has appeared to take unusual care in selecting his economic-policy team in order to avoid sabotaging a post-election rally. , a hedge-fund manager who is Mr Trump’s pick for treasury secretary, and , another financier who has been chosen as commerce secretary, have said tariffs are for negotiating with, unlike some of Mr Trump’s inner circle who are ideologically opposed to trade.Another check on the administration could be the fear of tariff-induced inflation. Americans’ experience of the highest price rises in 40 years helped doom Kamala Harris’s election bid. Mr Trump may not want to be seen as the architect behind surging prices of everything from Americans’ breakfast avocados to their newest set of wheels.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. Mr Bessent and Mr Lutnik have been joined by Jamieson Greer, his new trade representative, who takes a harder line. Although he was constrained in his first term, Mr Trump did still manage to raise some tariffs on China and Europe.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.
