To understand the harm Donald Trump has done with his tariffs on Canada and Mexico, here are four things you need to know:
First, every tax on imports is also a tax on exports.
The most popular beer in America is Modelo Especial, brewed in Mexico. Impose a 25 percent tariff on Modelo and sales will slide. So, too, will exports of the American barley that goes into Mexican beer. Mexico buys three-quarters of U.S. barley exports, almost all for brewing.
Trump surrogates may promise you that by driving Mexican beer off of grocery shelves, Trump’s tariffs will increase sales of U.S. barley to U.S. brewers. That promise may even be substantially true. But that offer has fine print that barley growers will notice.
Barley growers don’t care only about how much barley they sell. They care about the price at which they sell it.
A tariff raises the price of both every imported good and every good that competes with imports. If the price of Modelo is pushed up, the price of American-brewed beer will rise as well. American beermakers are not operating a charity. The tariff on Modelo allows them to both increase their market share at Modelo’s expense and raise their prices enough to increase their margins at the consumers’ expense.
But American consumers do not have infinite amounts of money. If they are paying more for beer, they have to make savings elsewhere. The result—and economists will prove this to you all day with facts and figures—is that prices in exporting sectors such as barley, and agriculture generally, will decline in proportion as prices in the importing sectors rise.
This is why developing countries that tried, after 1945, to bulldoze their way to industrialization using high tariffs—Argentina under Juan Perón; India under Jawaharlal Nehru—ended up instead isolating themselves from world markets. The tariffs did allow them to make their own radio sets and cars, but at the price of lowering national incomes and so shrinking the domestic market for those radios and cars. And, of course, the protected radios and cars could not compete on global markets against the superior products of the countries that accepted world prices, such as Germany and Japan.
Trump tariffs will be paid in the form of higher prices for imports and their substitutes, and lower profits and wages for everyone who works in export industries.
Second, every product is also an input.
When journalists write about tariffs, they look for everyday examples familiar to everyone, the way I just did with Modelo beer. Others will cite tomatoes or avocados, food items for which the cost of the tariff will be reflected in the price at the supermarket checkout. But the greatest harm done by tariffs is concealed in a way that prevents most of us from seeing the harm directly.
The largest glassmaker in North America is a Mexican company, Vitro. It operates plants in the U.S. and Canada, but the center of its operations is Monterrey, Mexico.
Very few of us buy big sheets of industrial glass. We do not see or care about the price. But we do care about the price of a new apartment. That apartment price depends on the cost of construction. Which depends on the price of the window systems that clad the apartment building. Which depends on the price of glass. Which Trump just raised by up to 25 percent.
You may buy a little aluminum in the form of cans and other household products. But the main way you pay for aluminum is in the price of airline tickets. Put a tariff on aluminum, and aircraft prices rise. Inflate aircraft prices, and airline-ticket prices also rise. The traveler will not know why, and will be tempted to blame airline greed—and will find politicians ready to feed that grievance. Who will connect the surprise extra fee they have to pay to sit beside their child with a president’s decree against the cheaper Canadian aluminum that owes its price advantage to superabundant Quebec hydroelectric power?
Big, sophisticated global companies can shift their input-sourcing from tariffed countries such as China and Mexico to favored countries such as Vietnam and the Philippines. But the shift is never easy. For smaller companies, it may prove altogether unfeasible. The largest maker of outboard motors in the United States employs only about 5,000 people. It is furloughing and laying off more than a quarter of its workforce. This type of firm cannot easily fly into Hanoi to source a reliable replacement for its trusted components supplier in Shenzhen, China. The challenge is only greater when the U.S. manufacturer has no idea how long the Trump tariffs will last. It will probably continue to use its familiar suppliers, pay the tariff, raise its prices, and suffer the stagnation and shrinkage of its business.
Third, “illegal” is irrelevant; don’t expect relief from tariffs through lawsuits.
You might wonder how can Trump do this. After all, Trump himself renegotiated NAFTA and praised his new U.S.-Mexico-Canada trade deal as “based on the principle of fairness and reciprocity.” Surely, it can’t possibly be consistent with U.S. treaty obligations to impose new tariffs on a whim.
All true. Trump’s actions are almost certainly illegal under treaty rules. But the U.S. stopped obeying treaty rules some time back.
In 2018, the Trump administration imposed tariffs on steel and aluminum imports. The affected countries took their case to the World Trade Organization. More than four years later, in December 2022, the WTO issued its judgment. The United States lost on every point. Result? The Biden administration declared it would ignore the ruling. The United States “will not cede decision-making over its essential security to WTO panels,” said a spokesperson for then–U.S. Trade Representative Katherine Tai.
Those defiant words were backed by obstructionist practices. In 2017, the Trump administration had blocked new appointments to the WTO’s appellate court, in effect the supreme court of world trade. The Biden administration continued the embargo. Today, all seven seats on the panel are empty.
The United States has likewise sabotaged the dispute-settlement mechanisms under the North American trade agreements. In 1998, the U.S. escaped defeat on a Mexican complaint by the ingenious method of refusing to appoint anyone to the commission that was supposed to adjudicate the matter. That more or less killed NAFTA from the start as a way to police actions by the American government. Trump’s U.S.-Mexico-Canada trade agreement is even more riddled with exceptions that allow his government to do as it pleases.
On trade, the U.S. itself has led the way back to the law of the jungle. Remember that fact when the other big cats strike back.
Fourth, Americans may not remember their past actions, but others do.
You may have already forgotten all about last weekend’s Trump outburst against Colombia, backed by threats of high tariffs on Colombian products. You may not ever have known that Colombia opened up to U.S. wheat, soybean, beef, cotton, and peanut exports in order to secure a free-trade agreement with the United States. But Colombians remember.
Colombia’s politics are intensely polarized, the legacy of bitter years of insurgency and civil war. Through most of the 21st century, Colombia’s politics had been dominated by U.S.-friendly politicians of the right. In 2022, for the first time in its modern history, Colombia elected a president of the left, Gustavo Petro. Petro is a former Marxist guerrilla, but he pledged to continue dialogue with the United States.
How does that dialogue look now to Colombians? And to others in South America and the world?
Trump is single-handedly reneging on 80 years of American work to persuade others to trust and rely on the United States. He is remodeling the international image of the U.S. after himself: impulsive, self-seeking, short-sighted, and untrustworthy. First-term Trump might have been dismissed as an aberration, brought to office by a fluke of America’s archaic Electoral College. A returned Trump, this time empowered by a genuine popular-vote victory, cannot be so readily dismissed. He obviously represents something deep in American politics, something likely enduring, something that other countries must take into account.
Mexico and Canada must ultimately suffer whatever the U.S. imposes on them. They cannot relocate; they have few credible options. Mexico has learned from especially bitter experience that any attempt to strike its own international deals will be vetoed by the U.S., using force if necessary.
Canadians have had an easier time, summed up by the cynical local joke: “The Americans are our best friends whether we like it or not.” But other countries have more options.
Over the past five centuries, the Euro-Atlantic world has seen the rise of one great power after another: Habsburg Spain, Bourbon and Napoleonic France, Victorian Britain, Imperial and then Nazi Germany, the Soviet Union. Each of those powers was ultimately brought down because it frightened other powers into uniting against it.
The United States since 1945 tried a different way. It reconciled the world to its dominance in great part by using that dominance for the benefit of willing partners. The United States provided security, it opened markets, it welcomed the improving prosperity of fellow democracies and like-minded allies. Who would hazard the costs and dangers of uniting to topple such a benign hegemon—at least, so long as the hegemon remained benign?
In the 21st century, the United States faces a new kind of adversary. Past rivals might have matched the U.S. in wealth, technology, or military strength, but not in all three. China today is the nearest peer power the U.S. has faced since Americans battled the British Empire in the War of 1812. To balance China while keeping the peace, the U.S. will need more and better friends than ever before. Trump is doing his utmost instead to alienate and offend those friends.
“America First” means “America Alone.” This week’s trade wars are steps on the way to future difficulties—and, unless a great infusion of better judgment or better luck suddenly occurs, future disasters.
The geopolitical verdict on the first Trump presidency could be written with a breath of relief: “Bad as it was, it could have been worse.” On the present trajectory, the verdict on the second may not come with any relief at all.
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