Is Trumps trade war with Mexico and Canada over?
www.vox.com
Donald Trump has incoherent and unhinged beliefs about trade policy. He also has a penchant for pretending to be a crazy guy for the sake of increasing his leverage in negotiations.This made it difficult to tell whether his proposal for an across-the-board 25 percent tariff on Canadian and Mexican imports was sincere. That policy was supposed to take effect Tuesday. But a flurry of last-minute diplomacy on Monday yielded agreements that postponed the onset of the tariffs for 30 days, while the US and its neighbors worked on shoring up security along Americas northern and southern borders. In exchange for the delay of these tariffs, the Mexican government agreed to send 10,000 national guard troops to its northern border while Trump vowed to stem the flow of American firearms into Mexico. Canada, meanwhile, pledged to implement its 1.3 billion border security plan (which it had already enacted in December). Trump posted on his Truth Social platform that he was very pleased with this initial outcome, and the Tariffs announced on Saturday will be paused for a 30 day period to see whether or not a final Economic deal with Canada can be structured.For now, it looks like Trumps avowed desire to upend North American trade if not to coerce Canada into becoming a US state was more negotiating ploy than agenda. Or at least, it appears that Trump was not sufficiently committed to that agenda to stick by it, even in the face of overwhelming industry opposition.This said, Trump did not withdraw his proposed tariffs he only shelved them for one month. There is a strong case for thinking that those tariffs will never take effect. But there is also some reason to fear that he might revive his plans for a North American trade war, if perhaps in more modest form.Why Trumps 25 percent tariffs will (probably) never take effectThere are at least three reasons to think that Trump will delay his 25 percent tariffs on Canada and Mexico indefinitely:Trumps proposed tariffs would benefit virtually no one, while imposing steep costs on US consumers and manufacturers alike.The Trump administration had explicitly framed these tariffs as a tactic for extracting narrow concessions from Mexico and Canada, rather than a strategy for economic reform. During his first term, Trump repeatedly threatened to enact massive tariffs, only to back down after concessions from Americas trade partners.The economic consequences of Trumps tariffs would be punishing. Altogether, his newly proposed duties would cost the typical US household more than $1,200 a year, according to an analysis from the Peterson Institute of International Economics. And this de facto tax increase would be regressive, burdening lower-income households more than wealthy ones, as the former spend a greater share of their incomes on foreign consumer goods.Economic nationalists might frame this as the necessary price of revitalizing American manufacturing. Yet high tariffs on Canada and Mexico would also have devastating consequences for US producers. The North American economy has been structured around the presumption of near-zero tariffs for three decades now. American automakers have constructed supply chains that stretch across our nations northern and southern borders: Different stages in the production of a car component often take place in different countries, with inputs being sent from back and forth across borders as many as eight times before the finished product is complete. If US carmakers need to pay a 25 percent tax each time they purchase a car part from a Canadian or Mexican supplier, their costs of production will soar. By one estimate, Trumps tariffs on Canada and Mexico would add $60 billion in costs to the industry. And firms would seek to pass on those costs to consumers. The consultancy Wolfe Research has estimated that the price of a new car would jump by about $3,000, according to Bloomberg.Meanwhile, the National Association of Home Builders warned over the weekend that imposing steep tariffs on housing materials and lumber from Canada and Mexico would lead to a slowdown in residential construction, at a time when America is suffering an acute housing shortage (and the rebuilding of Los Angeles is already taxing our nations supply of construction labor and materials).More broadly, Trumps tariffs would increase the value of the dollar, which means that US-made goods would become more expensive for foreign consumers (and thats before considering the retaliatory tariffs that Trumps moves would provoke). Thus, his policy would render American exporters goods less competitive in global markets, while also forcing up their costs of production by imposing a tax on foreign-made inputs.Given that Trumps tariffs would hurt almost all voters and business interests aligned with his party, its reasonable to suspect that they will eventually be withdrawn. The second reason to think that Trumps tariffs on Mexico and Canada will never take effect is that they were officially intended to fight a drug war, not a trade war. Trump claims that our neighbors to the north and south have been abetting the transfer of fentanyl and undocumented immigrants into the United States and that this constitutes a national emergency. This was the legal basis for Trump to enact the tariffs immediately, under the auspices of the International Emergency Economic Powers Act (IEEPA).If the point of Trumps tariffs was not to restructure the North American economy but merely to persuade Canada and Mexico to increase their border control efforts then the three countries should have little difficulty negotiating a lasting economic peace. The third reason to think that Trump will eventually withdraw his tariffs on Canada and Mexico is that weve seen this movie before.In 2019, Trump promised to slap a 5 percent tariff on all Mexican imports and increase it steadily to 25 percent if Mexico failed to reduce the number of undocumented immigrants entering the United States. After Mexican President Andrs Manuel Lpez Obrador agreed to reinstate the Remain in Mexico migration policies, the tariff threat was dropped.Whats more, in 2017, Trump reportedly told his top trade negotiator, Robert Lighthizer, to tell South Korean officials that Americas president was so crazy, he could pull out of the US-Korean trade deal any minute if he didnt get concessions.Thus, at times in the past, Trump has tried to make his intentions on trade policy appear more extreme than they were in actuality, for the sake of gaining leverage in negotiations.Why Trumps tariffs could rise againAll this said, there are still three reasons to think that Trump may yet revive his North American trade war:Trump has repeatedly suggested that his policy is not actually motivated by narrow concerns about border security, but rather, grand economic and imperial ambitions.Trump has been advocating for radically protectionist trade policies since the late 1980s, long before his ravings on that subject could serve as a negotiating ploy with foreign leaders.During his first term, Trump often sought to take radical actions on both trade and foreign policy only to have his instincts checked by adversarial advisers. This time around, Trumps inner circle appears much less interested in vetoing his most extreme impulses. Although White House officials such as National Economic Council Director Kevin Hassett have taken pains to portray Trumps tariff as a response to the fentanyl crisis, this appears to be a legal nicety. Over the weekend, Trump posted on Truth Social: We pay hundreds of Billions of Dollars to SUBSIDIZE Canada. Why? There is no reason. We dont need anything they have. We have unlimited Energy, should make our own Cars, and have more Lumber than we can ever use. Without this massive subsidy, Canada ceases to exist as a viable Country. Harsh but true! Therefore, Canada should become our Cherished 51st State. Much lower taxes, and far better military protection for the people of Canada AND NO TARIFFS!He further lamented that The USA has major deficits with Canada, Mexico, and China (and almost all countries!), owes 36 Trillion Dollars, and were not going to be the Stupid Country any longer. MAKE YOUR PRODUCT IN THE USA AND THERE ARE NO TARIFFS!These are not complaints about Canadian or Mexican drug policy. Rather, they are arguments for blowing up the North American trade system because it leads America to run trade deficits with Canada and Mexico which means that the US is subsidizing those countries.This is awful economic analysis. The fact that America purchases more goods from Canada than vice versa does not mean that we are subsidizing that country. You purchase more goods from your grocery store than it purchases from you. In that sense, you run a trade deficit with your grocer. But it does not follow that when you hand over your currency in exchange for a shopping cart full of food, you have just made a charitable donation to Kroger.Nevertheless, Trump complains far more often about the fundamental undesirability of trade with Canada than about that nations supposed laxity about stopping fentanyl exports.Separately, he reiterated on Monday that he would like to use tariffs to coerce Canada into accepting its annexation by the United States.Suffice to say, Canada still isnt the 51st state probably does not qualify as a national emergency that would legally justify extraordinary economic measures from the president. For this reason, the Trump administration likely faces a legal imperative to minimize the ambitions behind the presidents tariff policy.The second reason to think that Trump will stick to his guns on tariffs is that hes been making the same arguments about trade for nearly 40 years. A lot of people are tired of watching other countries ripping off the United States, Trump said of Americas trade deficit in 1987. They laugh at us behind our backs. They laugh at us because of our own stupidity.Trump had no motivation at that time to pretend to believe that trade is a zero-sum exchange in which the country running a surplus is the winner, and one running a deficit is the loser. The man was still a real estate mogul at that time, not a federal official, so his remarks could not have been intended as a mere diplomatic ploy. Finally, Trumps decision to keep his tariffs relatively modest during his first term may say more about the team that was around him at that time than it does about his own pragmatism.In 2017, Trump reportedly came extremely close to suddenly withdrawing the United States from the North American Free Trade Agreement (NAFTA). It took the concerted lobbying of his cabinet to stay his hand (a feat that was only achieved by presenting him with maps that suggested Trump voters would be disproportionately harmed by a collapse of trade with Canada and Mexico). Trump ultimately renegotiated and retitled NAFTA, dubbing his new version, The United States-Mexico-Canada Agreement (USMCA). Indeed, Trump tried to pursue a wide variety of radical and impulsive policies from withdrawing the US from NATO or bombing Irans nuclear facilities only to have his inner circle deter him or slow-walk his orders. But his advisers do not seem inclined to check his impulses this time around. To the contrary, they have expedited the execution of Trumps most harebrained ideas, such as releasing dammed waters into Californias Central Valley a policy ostensibly aimed at fighting wildfires in Los Angeles, but which in practice accomplished little beyond endangering homeless people, overwhelming local water managers, and depleting a water supply that Golden State farmers will need to draw on come spring and summer. Trump may give trade peace a chanceIn the end, it seems much more likely than not that Trump will beat a full retreat on his 25 percent tariffs. Although a new 10 percent tariff on Chinese imports is still slated to take effect Tuesday, the president plans to renegotiate the USMCA in 2026. To this point, whenever Trumps idiosyncratic impulses have come into blatant conflict with his corporate backers core interests, the latter have taken precedence.Yet the threat that Trump will eventually pursue profoundly costly protectionist policies cannot be fully dismissed. He has many genuinely mistaken conceptions about economic reality, and less political incentive to put pragmatism above ideological conviction than ever before.See More:
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