Donald Trump issues fresh tariff threats

SO BEGINSBRICS Donald Trump’s tariff roller-coaster, sure to be a stomach-churning ride for the global economy. He started with an unexpected show of restraint: rather than slapping hefty new tariffs on , he instead issued a presidential memorandum calling for a review of unfair trade practices. It seemed to be a measured start for Mr Trump—at least on the protectionist front, —prompting relief in government offices and on trading floors around the world. Foreign currencies and stocks rallied.Read more of our coverage:But by the time that evening fell, concerns about Mr Trump’s trade agenda had moved back to centre stage. Speaking to reporters in the Oval Office as he signed a bevy of executive orders, he said that he was minded to slap levies of 25% on both Canada and Mexico. “I think we’ll do it on February 1st,” he said. As for China, the target of his first-term trade war, he warned that he might impose hefty tariffs if its government blocks a sale of TikTok, a Chinese video app facing a ban in America. And for good measure he reiterated a campaign pledge to slap tariffs of 100% on members of the group of countries, which includes Brazil, Russia, China and India.As Mr Trump spoke both the Canadian dollar and the Mexican peso fell sharply, reversing their gains from earlier in the day. It was a bracing reminder of Mr Trump’s unpredictability as well as his penchant for protectionism. In his inaugural address he made clear that more tariffs were coming. “Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens,” he said—a line that his supporters may love but which distorts the grimmer reality of how tariffs function in part as a tax on Americans by raising domestic prices. He also said the government would establish an External Revenue Service to collect the “massive amounts of money” that will pour into America from its tariffs.The question is when, and how, Mr Trump will see through his various threats. The most extreme of Mr Trump’s trade ideas on the campaign trail was a universal tariff of as much as 20% on all imports into America. But in his comments on January 20th, he said that America was “not ready for that yet”. His prevarication hints at continued debate within Mr Trump’s inner circle. More traditional conservatives such as Scott Bessent, nominated to be treasury secretary, would like levies to be limited, mainly targeting industries that America wants to cultivate at home, such as batteries and steel. Hawkish voices in his White House—notably Stephen Miller, deputy chief of staff for policy—are pushing for full universal tariffs. By using his presidential memo to call for an “America first” trade policy without specifying its actual content, Mr Trump has given the different groups breathing space to work out the details.Waiting a few months on universal tariffs could also serve a legislative purpose. Under the arcane budgetary rules of Congress, bills passed with a narrow majority through the reconciliation process cannot increase the federal deficit on a permanent basis. In practice, that means that Republicans must find “pay-fors” to cover the cost of extending Mr Trump’s tax cuts from 2017, many of which are due to expire at the end of this year. By holding his fire for now, Mr Trump has left Republicans with universal tariffs as a large, albeit controversial, source of revenue for a tax package. If they decide against including tariffs in their bill, Mr Trump still has a range of legal options, such as declaring an economic emergency that would allow him to impose tariffs unilaterally.A final wrinkle is that a delay in at least some tariffs, especially those on China, aligns with Mr Trump’s instincts as a dealmaker. Mr Trump has signalled that he wants to re-engage with China: the reported on January 18th that he would like to visit Beijing to meet Xi Jinping, China’s leader, within his first 100 days in office. Rather than kick off a new trade war before that meeting, Mr Trump would come armed with the threat of new tariffs, potentially giving him a stronger position at the negotiating table.Mr Trump may have judged it easier at the outset to aim his tariff bazooka at Canada and Mexico, two countries that are heavily reliant on exports to America. Yet they could also end up serving as cautionary examples of the serious drawbacks in deploying tariffs. Levies of 25% will cause immense strains for American automakers since their production networks are deeply rooted in both Mexico and Canada. At the same time, the governments of both countries have vowed to retaliate, a preview of the kind of escalatory cycle that would surely greet any new tariffs from Mr Trump, wherever and whenever they hit. It is a wake-up call for the rest of the world, if one were needed, that the “tariff man” is back in power.