This North American trade war is silly and wrong, but expect Donald Trump to win it easily
Donald Trump has instigated what is surely the silliest trade war in living memory, with close friend and NATO ally, Canada, and with the most important economy in Latin America, Mexico.
But this is the shape of things to come.
And incidentally, Trump has begun the great saga of all the tariffs he will in time threaten and impose on China.
Trump loves tariffs. He has decided that tariffs and sanctions are his coercive measure of choice, his preferred revenue raising mechanism and the means by which he will reshape the international economic order and restructure the American economy.
The world will see a lot more of Trump’s tariffs, and no country, not even Australia, can consider itself immune.
Canada’s Prime Minister, Justin Trudeau, and Mexico’s president, Claudia Sheinbaum, have announced retaliatory tariffs on the US.
This is more or less a necessary move, but it’s not going to work.
It would be a bit like me picking a fight with Mike Tyson. It’s barely possible I might get one punch in, but the result is not remotely in doubt.
Nonetheless, it’s more than likely that this will be solved within weeks rather than months.
As ever with Trump, the action is outrageous, over the top, slightly mad, breaks all kinds of norms, and yet there is a genuine grievance he’s addressing and his actions, as unsubtle as they are, will likely have more or less the desired effect.
It’s true that Mexico has been happy enough to let illegal immigrants flow through its territory to the United States. That’s a problem. For every nation, including the US, has a right to protect its borders.
When Tony Abbott stopped the boats coming illegally to Australia from the north, at first this was a nuisance to Indonesia. It meant that people who would have come to Australia stayed in Indonesia. However, as a figure at the very top of Indonesian Government once remarked to me, it ultimately meant that the people stopped coming illegally to Indonesia in order to come to Australia. Once the boats stopped the issue between the two nations disappeared and no-one was happier about that than the Indonesian Government.
It’s also the case that prodigious amounts of fentanyl come into the US across the Mexican border. Much of the fentanyl, and the chemicals used to construct it, come from China.
Trump has told confidantes that he believes this is a deliberate policy by Beijing designed to weaken and undermine the United States.
One problem for Mexico, however, is that it’s pretty unclear what level of action on Mexico’s part will satisfy Trump.
The equation Trump wants is for the pain he inflicts to outweigh the gain from turning a blind eye, or worse, to fentanyl smuggling and facilitating illegal immigration.
But solving these issues may be beyond Mexico’s capabilities. Even Mexico’s best friend would not say it’s an especially effective state.
It may also be that all this drama, and promise of action by Trump, is too good a performance for Trump to give it up.
On the other hand, disrupting Canadian energy imports to the US, in particular, could dislocate tens of thousands of American jobs. Trump wants to use tariffs and corporate tax cuts to attract huge foreign investment into the US.
He’s likely to be successful in this. However, if he gets the reputation of creating too much instability in American trading life this could be a disincentive to investment.
In the end, these tariffs could be disruptive for the US, but they are potentially devastating to Mexico and Canada.
So, much as they might dislike Trump personally, much as domestic politics might require them to put up some show of defiance, Mexican and Canadian leaders have an overwhelming incentive to find a way to placate Trump.
As did Colombia on the issue of receiving its citizens back who had been deported from the US.
This trade spat involving the US, Canada and Mexico will have global consequences. The new president is known for his stubbornness. If he goes through a serious episode in which tariffs are clearly a successful play for him, he will be stubbornness on steroids. The tendency wto use tariffs for many other policy ends will be monstrously reinforced.
And let’s not for a second think Trump is alone in this. China for years nakedly used trade restrictions as a measure of political intimidation against Australia. Many nations honour free trade mainly in the breach.
Trump has declared the age of tariffs. There is much much more of this to come
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