By Michael Froman
The tariffs announced by president Donld Trump should come as no surprise: Trump was acting on a deeply held belief and fulfilling a key campaign promise. But what’s less clear is what Trump was hoping to get out of this tariff play. The president seems to have multiple goals in mind. Whether he will succeed depends on which he prioritizes.
A few days ago, president Donald Trump announced that the United States was going to impose 25 percent tariffs on goods from its two neighbors, Canada and Mexico, and 10 percent tariffs on all goods from China. Economists predicted chaos. Investors braced for impact. Trading partners scrambled to respond.
By the end of the workday on Monday, Canada and Mexico had managed to secure a thirty-day delay by pledging to ramp up their efforts to prevent the flow of migrants and drugs through their borders. But at midnight on Tuesday, the tariffs against China took effect, with Trump calling them merely an “opening salvo.” For now, the market’s reaction has been relatively muted.
The tariffs should come as no surprise: Trump was acting on a deeply held belief and fulfilling a key campaign promise. But what’s less clear is what Trump was hoping to get out of this tariff play. The president seems to have multiple goals in mind. Whether he will succeed depends on which he prioritizes.
One purpose seems to be to extract concessions in negotiations over a range of non-trade issues, from migration to drugs. The announcement of tariffs did immediately bring the Canadian and Mexican governments to the table, and the White House has made much of the changes they unveiled in response.
Canadian prime minister Justin Trudeau announced the appointment of a “fentanyl czar” and reiterated his prior commitment to spend hundreds of millions of dollars more on border security. Mexican President Claudia Sheinbaum promised to send ten thousand National Guard soldiers to the US border, joining the more than ten thousand troops already there.
Trump also hopes that tariffs will bring production back home and eliminate bilateral trade deficits. In remarks delivered by video to Davos, he exhorted foreign companies to shift their production to the United States. “Come make your product in America, and we will give you among the lowest taxes of any nation on Earth,” he said. “But if you don’t make your product in America, which is your prerogative, then, very simply, you will have to pay a tariff.”
Onshoring production is a long-term project. It takes time to reorder supply chains and invest in new factories. Doing so would almost certainly raise the costs of production, making the goods less competitive and more expensive for consumers and end users. In some cases, onshoring is simply infeasible. Is the United States suddenly going to turn over vast amounts of land.
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