Much to the astonishment of the rest of the world, U.S. President Donald Trump recently announced that he intends to impose a 25 per cent tariff on all goods imported from Canada and Mexico, as well as a 10 per cent tax on all Chinese imports. A move that has been swiftly criticised as the ‘dumbest trade war in history.’
For President Trump, imposing tariffs (or at least threatening to) is an opportunity to flex his political muscles. To see whether other world leaders will bend to his will. And they have. In exchange for a thirty-day delay on the tariffs, both Canada and Mexico have promised to send extra National Guard troops to their borders to stem the flow of illegal migration and drugs to the U.S. By exploiting their reliance on the American economy, the President is essentially holding his neighbours to economic ransom. This is certainly a win for Trump, with the 78-year-old proving his leverage over other leaders.
But is it a win for Americans? Probably not.
Rising Costs for Americans
Tariffs are protectionist measures which aim to reduce a country’s reliance on foreign economies. Trump taxing imports and making them more expensive than goods produced at home should (in theory) encourage U.S. citizens to ‘buy American,’ thereby aiding the President’s plan to make America great again. But in an increasingly interconnected world, it is almost impossible to buy exclusively American-made goods. Whether it’s a local bakery buying wheat from Ukraine or a giant tech firm importing chips from China, most businesses rely on global supply chains. These days, the likelihood that all components of an American product could be sourced in the U.S. alone is zilch. The trouble is that firms will continue to import any necessary parts and ingredients, except now they’ll come with hefty tariffs, and that means rising costs for consumers. Capitol Economics estimates that the annual rate of inflation could rise by as much as 4 per cent as a result of the tariffs.
The President himself has admitted that there will be ‘short-term pain’ for U.S. consumers, but claimed that ‘it will all be worth the price that must be paid.’ I have no idea what the exact worth of starting a trade war will be, but try explaining that to the 65 per cent of Americans whose finances have already suffered as a result of inflation. Tariffs generate revenue for the American government, which could eventually be spent on improving the quality of life for its citizens, but this isn’t for certain and it could take years before ordinary people feel the benefits. What is certain, though, is that this trade war will tarnish crucial economic relationships.
Retaliation is Inevitable
Trump’s attack on America’s trading partners is a dangerous move, and the economic shockwaves will reverberate far louder than a bunch of disgruntled Canadians at an ice hockey match. Retaliation is inevitable. Beijing has already set out plans to tax U.S. imports of crude oil, coal, cars and agricultural machinery, as well as measures that will make it more difficult for firms like Google and Calvin Klein to operate in China. However, none of this is surprising. America-China relations were never smooth to begin with. And Trump has always made his disdain for Mexico quite clear. The new tariffs are therefore merely a hiccup in an ongoing trade dispute between some of the world’s largest economies.
What is truly shocking is why Trump would turn on one of America’s closest allies: Canada. The trade relationship between the U.S. and Canada is the largest in the world; their exchange of goods and services in 2023 alone was worth £923 billion. In addition to their geographical proximity, the two nations have deep historical ties, having fought alongside each other in both world wars. It is no wonder then that many think Trump’s decision is ‘destabilising’ for all involved. The outrage across Canada is palpable:
‘We didn’t ask for this, but we will not back down in standing up for Canadians,’ said Prime Minister Justin Trudeau after confirming that he’ll tariff £86 billion worth of American goods in retaliation.
Retaliatory tariffs will negatively impact American exporters by making their goods more expensive and less competitive in the foreign market. These firms will inevitably sell fewer products and, if the success of their business is significantly hampered, they may be forced to lay off workers, leading to greater job losses in the U.S. Joshua Meltzer, a senior fellow at the Brookings Institution, predicts that tariffs on Canadian and Mexican imports could result in job losses of anywhere between 0.11 per cent to 0.25 per cent. This is equivalent to over 177,000 job losses and rising to over 400,000 should Canada and Mexico retaliate.
‘[Trump’s decision] is going to reduce U.S. economic growth, reduce jobs, cause wages to fall, and prices to rise,’ says Meltzer. ‘These tariffs will hurt [all countries involved] and impede the United States’ ability to develop more secure supply chains and compete.’
Culture of Inefficiency
Let’s focus on competition for a second. It is an unspoken rule in economics that consumers will always choose the option that will save them money. When foreign goods are cheaper than home-grown ones, most consumers will opt for imports. But then how do domestic firms compete? They adapt. Whether it’s through creating new ways to streamline the production process or cutting unnecessary costs to become more efficient, in an economy without protectionist measures, domestic firms are encouraged to better themselves if they wish to become more competitive. But when you introduce tariffs, these incentives dissipate. Suddenly, domestic businesses become more competitive because import prices have been raised artificially. Instead of pursuing innovation and efficiency, something that is essential for long-term success, Trump’s tariffs will likely breed a culture of complacency and ineptness.
So, who exactly stands to benefit from these tariffs?
Certainly not the countries they are imposed upon, who are likely to tip into economic recession. As for American consumers and businesses, these tariffs will almost certainly lead to rising costs, higher inflation, and a rise in unemployment. According to this prognosis, it would appear that Trump has made a decision where the only winner is … Trump.
DISCLAIMER: The articles on our website are not endorsed by, or the opinions of Shout Out UK (SOUK), but exclusively the views of the author.
