Trump’s Tariffs

On January 31st, President Trump announced the implementation of 25% tariffs on goods from Mexico and Canada, as well as 10% tariffs on imports from China. The White House stated that the president’s actions fell under the purview of the International Emergency Economic Powers Act (“IEEPA”), a law allowing the president to regulate international commerce in the case of a national emergency. The White House claimed that illegal immigration and the flow of drugs, particularly fentanyl, across the southern and northern borders of the United States poses a national security threat. Tariffs on neighboring countries were necessary, according to the White House, due to the cartel presence and production of fentanyl in Mexico, but also increasingly in Canada. China is also responsible for this national emergency, as its government has “failed to take the actions necessary to stem the flow of precursor chemicals to known criminal cartels and shut down money laundering by transnational criminal organizations,” justifying the tariffs placed on that nation as well.

Speaking to reporters in the Oval Office, Trump asserted that there was nothing China, Mexico, or Canada could do to forestall the tariffs. He insisted that they were not a negotiating tool, but an economic one, and that he was not looking for concessions from the targeted countries. He also claimed that the tariffs were necessary to reduce the US trade deficit with those countries.

This announcement was just the latest demonstration of Trump’s long-held affinity for tariffs. Days earlier, after Gustavo Petro, the president of Colombia, barred two US military planes carrying deported Colombian immigrants from landing, Trump threatened to impose 25% tariffs on Colombian imports, which would have been raised to 50% after a week if Colombia did not comply with US deportation policy. Petro threatened to respond in kind, but the situation fizzled out as the two countries came to a resolution, with Petro agreeing to accept the flights. 

Trump’s support of tariffs goes back decades and is tied up with a deep skepticism of international free trade. In the 1980s, during the height of Japan’s economic boom, Trump, still a celebrity real estate mogul, went on TV to advocate for a 15-20% tariff on Japanese imports. “I believe very strongly in tariffs,” he said. “We’re a debtor nation, and we have to tax, we have to tariff, we have to protect this country.” During his 2016 campaign and first presidential term, he continuously called the North American Free Trade Agreement (“NAFTA”), a deal negotiated by presidents George H.W. Bush and Bill Clinton  which created a free trade zone between Canada, Mexico, and the United States, “perhaps the worst trade deal ever made.” The message that Americans were being ripped off by trade with China was central to his 2016 campaign, and during his first term he imposed tariffs on a variety of Chinese imports. When President Biden entered office, he kept Trump’s tariffs on China in place, and added more of his own. During his most recent presidential campaign, Trump doubled down on his support for tariffs, citing the turn-of-the-century presidency of William McKinley when high tariff rates and impressive economic growth seemed to go hand in hand. Trump has claimed a wide, sometimes contradictory variety of purposes for the implementation of tariffs, including strengthening national security, forcing other countries to “pay their fair share,” creating American jobs, stopping unfair trade practices, replacing the federal income tax, stopping the United States from being “ripped off” by other countries, coerce Mexico into paying for a wall between the two countries, and, of course, compelling Canada to become “our cherished 51st state.”

The announcement of these latest tariffs on Canada, Mexico, and China sparked immediate reaction domestically and abroad. Prices fell in stock market indexes around the world. On Truth Social, Trump posted “WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!),” but that the price was worth it for the country. The pain being referred to by the president is financial. The Tax Foundation, a nonpartisan center-right think tank studying US tax policy, found that the proposed tariffs would damper economic growth, reducing GDP by 0.4% and capital stock by 0.3%. It found that, if permanently imposed, the tariffs would increase federal tax revenues by $1.1 trillion and translate into a tax increase of than $800 per US household, on average, this year. 

The response from the leaders of targeted countries was quick and aggressive. China submitted a complaint with the World Trade Organization (“WTO”), calling the tariff measures “discriminatory and protectionist,” and said that the White House’s accusations of China’s role in the trafficking of fentanyl into the United States were “unfounded and false allegations.” China’s government has also placed tariffs of its own on US goods, launched an anti-monopoly probe of Google, and is preparing to launch a similar investigation into some of Apple’s policies.

While the tariff on Chinese goods successfully went into effect earlier this week, those targeted towards Mexico and Canada were delayed at the last minute, following talks between Trump and the countries’ leaders. On February 3rd, the day before the tariffs were to take effect, Trump and President Claudia Sheinbaum of Mexico announced via social media that the tariffs would be put on hold for 30 days following what Trump called a “very friendly conversation” between Sheinbaum and himself. Mexico committed to immediately reinforcing the US-Mexico border with 10,000 troops to stymie northward drug trafficking, and in return, the US agreed to work to prevent the trafficking of “high powered weapons” down into Mexico. The two countries are to engage in negotiations over the month-long delay. 

While the US and Mexico came to an agreement fairly easily, the road to a deal with Canada seemed less clear for much of Monday. The demands made to Canada were less clear, and included non-sequiturs such as Canada becoming the 51st state. The announcement caused a surge of patriotism among the Canadian public and a sharp decline in popular perceptions of America around the country. Canadian sports fans have begun booing the Star-Spangled Banner before NBA and NHL games played between teams from both countries. Prime Minister Justin Trudeau prepared retaliatory tariffs, and, in a Monday morning phone call, failed to come to an agreement with Trump.

However, the two leaders eventually reached a compromise later that afternoon, similar to the one between the United States and Mexico. Trudeau announced that Canada would appoint a fentanyl czar, list cartels as terrorists, ensure 24/7 eyes at the border, launch a Canada-US joint strike force to combat organized crime, fentanyl, and money laundering, and signed a new intelligence directive on organized crime and fentanyl to be backed with $200 million. The tariffs on Canadian imports were also paused for 30 days and negotiations are set to take place. 

Although this potential trade war with Mexico and Canada was averted in the short term, this almost certainly will not be the last time that Trump’s unorthodox, protectionist trade policy makes headlines. The 10% tariffs on China have been fully implemented, and the tariffs on Mexico and Canada, despite being delayed, have made some experts question the future of the USMCA, a free trade deal between the three countries and Trump’s replacement for NAFTA, which must be renewed in 2026. After the concessions from Mexico and Canada on Monday, Trump told reporters in the Oval Office: “I don’t want to use names, but tariffs are very powerful, both economically and in getting everything else you want… When you’re the pot of gold, the tariffs are very good, they’re very powerful and they’re going to make our country very rich again.” Trump has, at various times since he took office, brought up the possibility of ordering tariffs on imports from a long list of nations, including The European Union, the United Kingdom, Russia, India, Turkey, Egypt, and more. It is also entirely possible that the tariffs on Mexico and Canada will go into effect after all, once the thirty days is up. The only certainty is that these tariffs, part of an explosive debut on many policy fronts, are only the beginning.