Trade war begins, as Trump leaves the world guessing
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The decision by President Trump to impose sweeping tariffs on Mexico and Canada is a stark repudiation of his own approach between 2017 and 2020.
Why it matters: No one yet knows whether these tariffs are an attempt by a transactional president to extract concessions from U.S. trading partners, or whether they're intended to become a permanent feature of the post-Trump landscape, designed to create a self-sufficient country much less reliant on international supply chains.
The big picture: This is the third major reconceptualization of North American trade since the end of the Cold War.
- Bill Clinton's NAFTA, which came into law in 1994, was an attempt to maximize trade and growth across North America.
- Trump 1.0's USMCA, which came into effect in 2020, was a renegotiation of NAFTA where the U.S. fought narrowly for its own best possible deal, with less concern for the consequences in Mexico and Canada.
- Trump 2.0's tariffs effectively tear up USMCA and the concept of trade deals. In their place is an isolationist ideology that, if sustained, could cause massive economic harm not only in the U.S. but around the world.
What they're saying: Trump's executive orders, entitled "Imposing Duties To Address The Flow Of Illicit Drugs Across Our National Border," explicitly say the tariffs are a response to "the sustained influx of illicit opioids."
- This announcement leaves open the possibility that should the fentanyl trade be addressed to Trump's satisfaction, the tariffs will be rolled back.
- Indeed, analysts at Goldman Sachs wrote in a note Sunday that "in light of their potential economic effects and the fact that the White House has set general conditions for their removal, we think it is more likely that the tariffs will be temporary but the outlook is unclear."
- "The national emergency we face is not about drugs or immigration," United Auto Workers president Shawn Fain said in a statement Sunday, urging Trump instead to "immediately seek to renegotiate our broken trade deals."
Between the lines: If the aim of the tariffs is to encourage companies to move manufacturing jobs from Mexico and Canada back to the U.S., then Trump will need to signal they are intended to be permanent. So far, that signal hasn't come.
The bottom line: Trump is unpredictable, and even he is probably unclear on how he would like to see his latest trade war play out.
- Even if this one is resolved quickly, however, Trump has now made clear that he can and will impose his beloved tariffs at any point and for almost any reason.
