True cost of Trump’s tariff folly

As Americans have come to accept, Donald Trump never admits a mistake or error of judgment. But he does often change his mind, and that is the context in which his announcement on Tuesday, that he is pausing his 25 per cent tariffs on Mexico and Canada after gaining concessions from them, should be seen. Perceptions may be of another swift victory (in less than 48 hours) for the same coercive trade and foreign policies that last week saw Colombia rapidly bend to Mr Trump’s threats and accept plane loads of returned illegal migrants, and Panama quickly abandon its commitment to be part of China’s notorious Belt and Road policy. For all that, however, the extent of Mr Trump’s declared “victory” is at best questionable. It is by no means certain his administration’s resort to the same sort of brutalist and ill-considered trade measures that China has used to undermine the rules-based world order (notably in lashing out at Australia) will be the best strategy for the US and its allies in the longer term. This is particularly so given China’s retaliatory sanctions against the US, which suggest the destabilising phase has just begun.

The concessions Mr Trump got after telephone calls on Monday with Mexican President Claudia Sheinbaum and outgoing Canadian Prime Minister Justin Trudeau have been described by The Wall Street Journal as “minor”. According to Mr Trump, Ms Sheinbaum agreed to deploy 10,000 National Guardsmen to the US border to fight drug trafficking, especially fentanyl. For his part, according to Ms Sheinbaum, Mr Trump reciprocally committed to preventing “the trafficking of high-powered weapons to Mexico”.

Similarly, Mr Trudeau promised to deploy more law enforcement to the US border and will appoint a “fentanyl tsar” to deal with the 1 per cent of the drug on American streets that is believed to arrive across the Canadian border. With all three agreeing to continue negotiating on “security and trade”, and Mr Trump pausing his imposition of sanctions for a month, there is no certainty about what happens next. Equity markets are understandably relieved, doubtless hoping he may be rethinking the trade war he launched.

He should do so. It is one thing to go after China, with its egregious record on trade. But it is another to create the uncertainty and apprehension that last weekend’s announcement caused even among Washington’s closest allies. Doing so plays into the hands of China and Russia as they seek to use the trade-based BRICS group of countries to gain further strategic advantage by supplanting Western influence in countries across the world that may be worried by what Mr Trump may do against them. Using punitive tariffs, as Mr Trump proposed to do against Mexico and Canada, and might still do, is not some genius power play, as the Trump media chorus is boasting. It is destabilising and is not only bad public policy but also undermines the position the US and Australia have taken against China in demanding it adhere to a rules-based world trade order.

China, as its entirely illegal sanctions hit on Australia showed, pays no more than lip service to such a concept. But that is no reason for the US under Mr Trump to use the same lawless tactics against friends and neighbours. The speed with which Mr Trump, Ms Sheinbaum and Mr Trudeau have, since the drama of last weekend’s imposition of tariffs, managed to talk and work out at least a temporary solution to their differences should serve as a lesson about the better way to go.

It could be, of course, that the 25 per cent tariffs he announced could return in a month if Mr Trump is in a particularly capricious mood, or doesn’t like something a foreign leader has done or said. But at least the contretemps has, hopefully, amplified to him the need to talk and negotiate rather than behave like the UFC fighters he admires when it comes to international trade and diplomacy. That is what new US Secretary of State Marco Rubio did when he went to Panama to warn it of Mr Trump’s concern over growing Chinese influence over control of the vital Panama Canal. He told Panama Washington would “take the necessary measures” if it didn’t curb Chinese influence, and Panama immediately announced it was abandoning its agreement to join Beijing’s notorious Belt and Road Initiative. That is a significant win.

Mr Trump achieved a broad mandate in the election. Border control was high on the list. He has every right to pursue his goals. But using tariffs to lash out at friends and neighbours in what The Wall Street Journal has termed “the dumbest trade war in history” is not the way to go. Doing so is both a mistake and an error of judgment.