Hailing the “Golden Age of America” that he insists will be ushered in by his proposed tariff regime – initially in the form of 25 per cent tariffs on most imports from Canada and Mexico, and 10 per cent on all imports from China – Donald Trump acknowledged there may be “some pain” ahead for American consumers. “But we will make American great again, and it will be worth the price that must be paid,” the president posted on social media on 2 February. “The results will be spectacular!”
The stock markets did not agree. The main US indices – the S&P 500, Dow Jones Industrial Average and Nasdaq – all fell on opening on 3 February, as did the FTSE 100, France’s CAC and Germany’s DAX. They recovered later in the day, after Trump announced he was pausing the tariffs on Mexico, and then Canada, for a month after their respective leaders agreed to step up efforts to secure their shared borders. Having insisted, just 48 hours earlier, that there was nothing Mexico, Canada or China could do to forestall the tariffs, Trump’s climbdown raised hopes on Wall Street that perhaps he was not fully committed to unleashing a global trade war after all. Then again, perhaps it was all part of the broader negotiation process for a man who boasts of his ability to keep his opponents off-balance and now appears to be applying the lessons of a career in real estate and reality TV to international trade.
Nominally, Trump’s tariffs are in response to the “extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl”, which he has declared a national emergency, thereby allowing him to invoke the International Emergency Economic Powers Act. He accuses China of exporting the precursor chemicals to make fentanyl, and Mexico and Canada of permitting the drugs to enter the US, along with a “flood of illegal aliens”. But even as Trump outlined the official rationale behind these measures, he frequently slipped back into his more familiar grievances about the balance of American trade. “It’s pure economic,” Trump told reporters in the Oval Office as he signed the executive order authorising the tariffs on 1 February. “We have big deficits, as you know, with all three of them.”
According to this logic, the US’s three biggest trading partners, which collectively supply more than a third of the goods entering the country every year, are taking advantage of American largesse and should pay more for the “privilege” of selling their products to Americans. In the Trumpian world-view, international trade is a zero-sum game with only winners and “suckers”. He wants to reverse the trend towards free trade that has been Republican orthodoxy for the past three decades in favour of an “America first” trade policy. He has mulled the creation of an “external revenue service” (as opposed to the Internal Revenue Service, which handles domestic taxes) to collect the new tariffs, which he says will help pay for the trillions of dollars in tax cuts he promised during the election, insisting that the costs will be borne by foreign companies, not US consumers and businesses. “Tariffs don’t cause inflation, they cause success,” Trump insisted in response to concerns that American consumers will face higher prices and inflation. “So we’re going to have great success.”
But this fundamentally misunderstands how American manufacturing and supply chains work. “A 25 per cent tariff on Canada and Mexico threatens to upend the very supply chains that have made US manufacturing more competitive globally,” Jay Timmons, president of the National Association of Manufacturers, said in a statement. “The ripple effects will be severe.” The American Farm Bureau Federation similarly warned that farmers and rural communities “already grappling with inflation and high supply costs” would “bear the brunt” of the tariffs, pointing out that more than 80 per cent of the US’s supply of potash, a key ingredient in fertiliser, comes from Canada. The Wall Street Journal editorial board pronounced Trump’s offensive: “The dumbest trade war in history”.
“There is no economic logic to using tariffs as a main source of tax revenue, nor as a way to address the balance of trade,” said Erica York, vice-president of federal tax policy at the Tax Foundation, a non-partisan think tank, whose research estimates that the proposed tariffs will cost the average US household more than $800 per year. “Trump’s tariff proposals are extremely misguided, will cause economic harm for all involved, and will have long-lasting consequences even where the tariffs themselves are short-lived.”
[See also: Is Trump actually serious about tariffs?]
While Trump has granted Mexico and Canada a one-month pause, the possibility of tariffs still hangs over both, threatening to push their economies into recession and jeopardise thousands of jobs if the talks that follow do not proceed as the American president desires. China, meanwhile, has responded to the 10 per cent tariffs that went into effect on 4 February with a series of retaliatory measures, including new tariffs of its own on exports of farm machinery, coal and liquefied natural gas from the US, restrictions on the sale of some critical minerals, and an investigation into Google.
Still, Beijing will have noted that the new tariffs are significantly lower than the 60 per cent Trump floated on the campaign trail, and less than half the level he has threatened to levy on his North American neighbours. China’s leadership will likely interpret this “as a sign that Trump is open to negotiation”, said Steve Tsang, director of the SOAS China Institute. Xi Jinping has taken steps to cultivate cordial relations with Trump, sending his vice-president, Han Zheng, to attend the inauguration. He will be wary of unnecessarily antagonising Trump at a time when the Chinese economy faces its own domestic headwinds, and will seek to “carefully calibrate China’s response”.
The conundrum for the three countries targeted so far – and the many other US trading partners watching anxiously from around the world – is that it is still unclear what, exactly, Trump wants. Is he genuinely motivated by stopping the flow of fentanyl and shoring up American borders? Or is he more concerned about the US trade deficit and the loss of manufacturing jobs overseas? Is he really prepared to stomach rising costs for consumers at home – when he was elected, in large part, by voters who said the economy was their most important consideration – and retaliatory measures against US exports overseas? “We’re your biggest customer,” noted the former Canadian foreign minister Chrystia Freeland, who is vying to become the country’s next prime minister, in response to the tariffs. “It doesn’t make a lot of sense to be punching us in the face.”
The only certainty is that there will be more tariffs to come. Asked on 2 February whether the UK could be next, Trump said that “might happen” but that it would “definitely happen with the European Union”, which he called an “atrocity” on trade. We will find out in the turbulent months ahead just how far he intends to go – whether he will be satisfied with a few impressive-sounding deals to cement his reputation as a tough negotiator, or if he is truly committed to upending the global economy and rethinking the fundamental principles of US trade. Perhaps not even Trump knows the answer to that yet.
[See also: DeepSeek: The race to God Mode]
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This article appears in the 05 Feb 2025 issue of the New Statesman, The New Gods of AI