Whether through sheer ignorance, or malevolent intent, Trump is causing chaos, alienating allies and enemies alike, and hurting ordinary Americans.
According to some readers, I was being disingenuous when I took Trump at his word over promises such as tariffs. I should have been smart enough to realise that this is just the way he talks. It is all just rhetoric, a negotiating tactic by a master deal-maker, I was told.
I was also being inconsistent, because while I called Trump a pathological liar, I took him at his word over election promises to which I objected.
Turns out it wasn’t just rhetoric, and I was right to take him at his word.
He has announced a blanket 10% tariff on America’s largest trading partner, China, and 25% tariffs on all imports from America’s two next-largest trading partners, Canada and Mexico. These three represent 40% of all American imports. The latter two also represent the US’s largest export destinations, with China in third.
All three countries have resolved to retaliate with tariffs, or worse, on trade with America. In a case of supreme irony, China is complaining to the World Trade Organisation.
It is inevitable that Trump will also impose import tariffs on the EU, and likely on many other countries, too, because he doesn’t understand what a “trade deficit” means.
Trade deficits
Because he doesn’t read, he thinks that a “deficit” is a bad thing. He thinks it is bad that other countries export more to the US than the US exports to them.
What it really means is that America is richer than they are, and Americans can buy more from the other countries than foreigners can afford to buy from America.
As the net buyer, the US gets to call the shots, while other countries are dependent on it, and are forced to work to produce goods and services for the American people.
The US is the world’s largest importer of goods because it is the richest (large) country in the world. This makes Trump unhappy, which implies that he is either an idiot, or an evil villain hell-bent on destroying the American economy.
So as not to assume the worst, let’s proceed on the premise that he is merely stupid.
Trump wants America to be dependent on the prosperity of other countries, by turning America into the workshop for the world, as it was in the 19th century. He actually envies developing countries, whose only hope of getting richer is to act as America’s workshop. He looks at China, and thinks, “I wish we were more like them,” while China is pulling out all the stops to be more like America.
Trump just doesn’t get it. His reckless trade war will make Americans poorer. It will reduce the disposable income of Americans, and will hit poor Americans harder.
Fentanyl lies
And it’s not as if Trump actually wants anything from these countries. He has claimed that the tariffs are justified because of fentanyl imports into America, but that is a pathetic excuse.
You don’t wreck your economy to get a handle on drug trafficking, unless you’re an idiot. That’s like treating a headache by blowing your head off with a shotgun. It might work, but it makes a mess that other people will have to clean up.
Trump has said that “drug cartels” are “killing 250 000 [or] 300 000 American people per year”. His White House spokesperson, Karoline Leavitt, claimed that fentanyl has “killed tens of millions of Americans”.
Both those claims are false. Overdoses involving all hard drugs killed a little over 100 000 Americans per year in 2022 and 2023. What’s more, the overdose rate has decreased by about 20% since its peak in August of 2023. Whatever was being done appeared to have been working.
And even if it wasn’t, I repeat: it is stupid to crash an economy, and antagonise your allies in the drug war, to stop drug imports.
Who pays tariffs?
Trump keeps saying tariffs are paid by foreign exporters, but they are not. They are paid by domestic importers, who are forced to raise their prices in response. They make imported goods and resources more expensive for Americans, which makes America’s industry less competitive.
Tariffs are a tax on your own citizens. Trump seems bent on replacing income and corporate taxes, which he has promised to cut further, with tariff revenue. The difficulty with that is that tariffs are regressive: they hit the poor hardest. More specifically, they hit Trump’s biggest supporters hardest.
Let’s use an example. In 2018, Trump imposed a 50% tariff on nearly all imported washing machines. The price of washers in the US increased nearly 12%. What’s more, so did the price of dryers, which weren’t subject to the tariffs.
Researchers estimate that these price increases cost US consumers $1.5 billion per year, even though the tariff revenue collected was a mere $82 million annually. The policy resulted in an estimated 1 800 new jobs in the US. That means each job was bought at the enormous price of $815 000, a cost borne not by foreign washing machine makers, but by US consumers.
Tariff impacts
The impacts of Trump’s new and improved trade war will be felt far and wide, throughout the US and world economies.
The US imports important raw materials and finished goods from its trading partners. Those will now cost more.
Mexico supplies the US with fruit and vegetables, cars, car parts, trucks and computers – often made by American companies operating in Mexico.
The US imports smartphones, laptops, computer components, electronic equipment, toys and games, batteries, and plastics from China.
Last year, 60% of US heavy crude oil imports (which better suit its refinery industry than the light crude produced domestically) came from Canada.
Canada also exports vehicles, machinery and plastics to America, along with potash, a key ingredient of agricultural fertilisers, of which Canada is the world’s largest producer. Let’s see how American agriculture goes without enough fertiliser.
Perhaps some US industries can increase production to make up for some of these lost imports, but in America, both land and labour are more expensive. Not having to compete with cheaper imports means American alternatives will cost much more than the pre-tariff imports cost.
There simply is no winner in a trade war.
The US Tax Foundation keeps a frequently updated tally of the estimated impact of the tariffs imposed by current and previous US administrations. (Biden was equally guilty of maintaining and raising tariffs.) They find that American tariffs, and the retaliatory tariffs imposed by foreign countries, reduce US growth, reduce US capital stock, and cost US jobs.
I have yet to encounter an economist, whether left, right or centre, who doesn’t say that tariffs will be inflationary. MAGA morons voted for cheaper eggs. They won’t get them. The internet is filling up with videos of MAGA voters realising with shock that Trump’s tariffs will mean higher prices for them.
Global impacts
Here’s what’s going to happen.
The US will not become a re-industrialised powerhouse. Its industry will grow somewhat, and large corporations will benefit from this, but it will come at the cost of consumer price inflation, lower economic growth, and few, if any, added jobs.
By “demanding lower interest rates” (which will require infringing on the independence of the US Federal Reserve), Trump will create an artificial asset bubble fuelled by easy money. This will convince the MAGA faithful that Trump is playing 4D chess, because none of them remember Alan Greenspan.
Meanwhile, export-oriented countries are going to find other markets to sell to, and also develop their own markets. Given the new trade barriers with America, the world’s largest market, they will instead develop more favourable trade relations with other countries.
Other countries will be forced to become more self-sufficient, as there is less opportunity to produce stuff for American consumers.
And the biggest winner of all in this trade war will be China. World trade will increasingly shift away from the US, and towards China.
The US was the main flag-bearer for free trade in the last 100-plus years, and as a result became the world’s primary economic power. It will take a bit of mental recalibration to get used to the idea, but Trump may have just handed that flag to his arch-enemy, Xi Jinping.
Postscript: After this column was filed, tariffs on imports from both Mexico and Canada were put on hold for 30 days, after each country re-announced border control measures they were already taking. Trump and his MAGA cult will offer this as evidence that tariff threats work as a negotiating tactic, even though neither country made any new concessions, tariffs remain on the table, and international goodwill towards America has been squandered for nothing.
[Photo: The containership MV Rena ran aground on the Astrolabe Reef, near Tauranga, New Zealand, in 2011. Photo: Wikimedia Commons. Rena.webp]
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