This is why you can't have nice things in a trade war
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Illustration: Tiffany Herring/Axios
America is a large, rich country with a sweet tooth. Madagascar is a small, poor country with an abundance of vanilla. There's therefore a natural trade to be made: They send us their precious pods, we send them the dollars they need for day-to-day necessities.
Why it matters: By the logic of the Trump administration's new tariff regime, that's not a natural trade at all.
- Instead, it's proof that tiny Madagascar is "picking on us" (to quote Commerce secretary Howard Lutnick on CNBC this morning) by selling us its natural riches.
Zoom in: As the US Trade Representative sees it, every trade deficit is the result of "tens of thousands of tariff, regulatory, tax and other policies" — rather than reflecting any natural differences in the wealth and patrimony of different countries.
- In the case of Madagascar, because it runs a trade surplus with the United States, it is being hit with a 47% tariff, not only on vanilla but also on everything else it exports to us.
- The stated aim is to find a tariff large enough to bring that deficit down to zero.
- Given that Madagascar has precious little need for U.S. exports, that means in practice that the tariff has to be big enough to stop Americans from consuming more than a thousand tons of vanilla every year.
The big picture: When nice things get more expensive, we consume less of them, or move to cheaper alternatives.
- We'll use synthetic instead of natural vanilla, we'll swap domestic beer for imported wine, we'll drink coffee made from robusta rather than arabica beans.
- The losers are the exporters, to be sure — they make fewer sales to Americans, although in general they'll just sell to other countries instead.
- But among the losers must also be counted the U.S. consumers who valued those everyday luxuries in the first place and are now forced to cut back.
What they're saying: "The new U.S. tariffs won't affect the reputation of Italian wines, which continue to be regarded as high-quality by American consumers," says Italian wine merchant Andrea Moradei of Vinarium.
- "However, the impact on demand will be significant," he adds.
The bottom line: The U.S. doesn't produce a lot of luxury goods for export. The French don't drink much California cabernet; the Scots rarely covet Kentucky bourbon.
- If Trump and Lutnick want to tariff their way to their stated aim of a trade balance of zero, then Americans are going to have to do much less of the one thing they're the best in the world at, which is consuming things.
- Sorry, cigar aficionados.
