I nearly used that title before the Journal. And now, Canada gets a reprieve too.
Trump Blinks
This afternoon, the US struck a deal with Canada to pause the tariffs for 30 days. In response, the Wall Street Journal editorial board says Trump Blinks on North American Tariffs
President Trump never admits a mistake, but he often changes his mind. That’s the best way to read his decision Monday to pause his 25% tariffs against Mexico and Canada after minor concessions from each country.
Mr. Trump claimed victory, as he always does. He pointed to Mexican President Claudia Sheinbaum’s decision to deploy 10,000 National Guard troops to the U.S. border to fight drug trafficking, especially in fentanyl.
Equity markets responded with relief, recovering from steep opening losses and declines in Asia and Europe, though the Nasdaq still fell 1.2% on the day. We’re glad to see the two sides step back from an immediate and mutually harmful trade war.
But there’s much less to this tariff truce than meets the eye. Mr. Trump won an announcement of help at the border, though what the Mexican troops will actually do to fight the cartels trafficking drugs isn’t clear. Drug enforcement is a hardy perennial in U.S.-Mexican relations, and Mexico has promised help before, notably during the presidencies of Felipe Calderón and Enrique Peña Nieto.
As for immigration, Ms. Sheinbaum has already essentially agreed to cooperate on restoring the Remain in Mexico policy for migrants who reach the Mexico-U.S. border. Illegal border crossings have also been falling fast as Mr. Trump has sent a signal that illegal migrants won’t be allowed to stay in the U.S.
Later Monday, Mr. Trump paused his tariffs against Canada as well after a phone call with Prime Minister Justin Trudeau. Canada is also deploying more law enforcement to the U.S. border and will appoint a “Fentanyl Czar,” among other enforcement promises.
If the North American leaders need to cheer about a minor deal so they all claim victory, that’s better for everyone. The need is especially important for Mr. Trump given how much he has boasted that his tariffs are a fool-proof diplomatic weapon against friend or foe. Mr. Trump can’t afford to look like the guy who lost. Ms. Sheinbaum in particular seems to recognize this, and so far she’s playing her Trump cards with skill.
None of this means the tariffs are some genius power play, as the Trump media chorus is boasting. The 25% border tax could return in a month if Mr. Trump is in the wrong mood, or if he doesn’t like something the foreign leaders have said or done. It also isn’t clear what Mr. Trump really wants his tariffs to achieve. Are they about reducing the flow of fentanyl, or is his real goal to rewrite the North American trade deal he signed in his first term? If it’s the latter, there’s more political volatility ahead.
Mr. Trump’s weekend tariff broadside against a pair of neighbors has opened a new era of economic policy uncertainty that won’t calm down until the President does. As we warned many times before Election Day, this is the biggest economic risk of Donald Trump’s second term.
What Happened?
My guess is that Trump did not like the market reaction and this was really a trial balloon after all.
It is not even clear what Trump’s goals are.
Since Trump says “tariff is the most beautiful word in the world” and he wants to “use tariffs to finance the budget”, he certainly failed the mission by backing down.
Tariffs on Hold
This morning I wrote Mexico Tariffs on Hold After Border Agreement on Fentanyl and Guns
My subtitle was “Who backed down? Trump or Mexico? It’s really both. And it’s an illusion Trump gained anything.”
I originally had a title of Trump blinks, but decided what really happened is common sense prevailed.
The Journal concluded what I did. My words were “It’s an illusion Trump gained anything.” My comment:
The Tie-Tie (at Best) Deal
Mexico appeased Trump’s ego. He gets to brag.
So does Pardo. She gets to brag about halting the flow US guns (whether that happens or not, because Trump likely won’t do a damn thing).
Regardless, this is at best a tie-tie deal that could easily have been accomplished without all the tariff bravado.
Trump achieved his macho-man goal, but at a high price. The price we pay is the world now understands Trump is willing to break any deal, even those he makes.
I do not know the cost of that, and you don’t either.
Making Points
Kentucky Republican Senator Rand Paul correctly stated: “Taxing trade will mean less trade and higher prices.”
The head of the National Association of Manufacturers, Jay Timmons, said it put American jobs at risk. “The ripple effects will be severe.”
Mexican President Claudia Sheinbaum Pardo is 100 percent spot on in her assessment “We had a trade agreement and that was the best tool to continue competing against China.”
She made her point, but did so in a way that allowed Trump (and her) to save face.
Not only did Pardo make her point, so did the market.
Trump can brag all he want, but he backed down. I believe Trump was spooked by the market reaction. Would Trump have backed down if the market reaction was strongly positive?
Regardless, the bragging will continue.
Question of the Day
How is Trump supposed to raise massive amounts of money from tariffs to reduce the deficit if all he does is back down?
I will do a follow-up post on the insanity in believing tariffs can replace the income tax in raising money.
Trump’s Bravado Lasts One Day
Yesterday, Trump defended his tariffs, saying in an all-caps post: “Will there be some pain? Yes, maybe (and maybe not!)” He added that “it will all be worth the price that must be paid,” and repeated a call to turn Canada into America’s 51st state.
Well that was a fast turnaround wasn’t it?
All Trump proved is that he is willing to break any deal he makes only to back down if the market objects.
The cost is a loss of trust. No one can believe any deal he makes.
All hail the alleged victory anyway.
Related Posts
September 26, 2024: Trump Claims Tariffs Will Reduce the Trade Deficit. Let’s Fact Check.
Trump proposes 60 percent tariffs on China. Would that reduce the trade deficit? Where? How?
October 5, 2024: Buy American Provisions Cost $125,000 Per Job Created
“Buy America” sounds great. But it’s costly and about to rise steeply.
January 31, 2025: Seven Charts Show Tariffs Would Harm the US Auto Industry
The CATO institute does a great job explaining why tariffs on Canada and Mexico would be a very bad idea.