To Tar­iff, or Not to Tar­iff?

To Tariff, or Not to Tariff?

To tar­iff, or not to tar­iff, that is the ques­tion to which Pres­i­dent Don­ald Trump has, in recent days, giv­en dif­fer­ent answers. On Mon­day, hours before tar­iffs on Cana­di­an and Mex­i­can imports were sched­uled to take effect, Trump paused them for 30 days. The next day, yet anoth­er tar­iff, this one on goods from Chi­na, came into force.

Before Trump announced the pause, the busi­ness press was, pre­dictably, apoplec­tic. The Wall Street Jour­nal said Trump was impos­ing tar­iffs on Cana­da and Mex­i­co “for no good rea­son.”

America’s Found­ing Fathers were more open than the Journal’s edi­to­r­i­al board to the virtues of pro­tec­tion­ism. The Tar­iff Act of 1789, signed into law by Pres­i­dent George Wash­ing­ton, was the first major bill passed by Con­gress.

So the pres­i­dent can right­ly claim to be restor­ing a trade regime that helped make the coun­try great in its ear­ly years. But that doesn’t mean tar­iffs car­ry no down­sides. As Trump weighs the eco­nom­ic costs and ben­e­fits, he should also take heed of the polit­i­cal risks.

Some of those risks flow from the eco­nom­ic costs. Before Trump’s Mon­day rever­sal, the Yale Bud­get Lab esti­mat­ed that the loom­ing tar­iffs would, in the near term, reduce pur­chas­ing pow­er per U.S. house­hold by $1,250 on aver­age and shrink the econ­o­my by 0.2 per­cent. That’s not cat­a­stroph­ic, but Amer­i­cans liv­ing pay­check to pay­check would have felt the squeeze. On Sun­day, Trump con­ced­ed that the tar­iffs may bring “some pain” for Amer­i­cans. 

Infla­tion played a big role in Trump’s elec­tion vic­to­ry last Novem­ber. If new tar­iffs cause Amer­i­cans to pay more for gro­ceries, sneak­ers and cars, then vot­ers may start to blame Trump and eco­nom­ic nation­al­ism, rather than Democ­rats and waste­ful gov­ern­ment spend­ing, for high prices.

If any issue played a big­ger role in the pres­i­den­tial cam­paign than infla­tion, it was immi­gra­tion, as Trump him­self has said. Secur­ing the bor­der and deport­ing ille­gal aliens makes Amer­i­ca safer, boosts wages, and helps pre­serve the cul­tur­al inher­i­tance of Amer­i­cans, but it also puts upward pres­sure on prices by restrict­ing the pool of cheap labor. If the busi­ness com­mu­ni­ty push­es back on ris­ing costs, Trump may find it eas­i­er to water down his immi­gra­tion agen­da than to back down on tar­iffs.

Wag­ing eco­nom­ic war­fare doesn’t just risk a back­lash from domes­tic indus­try, but also from for­eign nations. Since Trump announced the tar­iffs, Cana­di­ans have booed the U.S. nation­al anthem at pro­fes­sion­al hock­ey and bas­ket­ball games. Prime Min­is­ter Justin Trudeau, in a speech on Par­lia­ment Hill, con­veyed his nation’s sense of betray­al, and his gov­ern­ment read­ied retal­ia­to­ry tar­iffs tar­get­ing red states. Cana­di­an oppo­si­tion to Trump’s move was bipar­ti­san. Con­ser­v­a­tive leader Pierre Poilievre said that “there is no jus­ti­fi­ca­tion for these tar­iffs or this treat­ment.”

Tar­iffs, while weak­en­ing U.S. ties with allies, could strength­en their ties with U.S. adver­saries. Dur­ing the Biden admin­is­tra­tion, the Euro­pean Union joined Amer­i­can efforts to “de-risk” trade with Bei­jing. But now, as Euro­peans await expect­ed U.S. tar­iffs, the EU is recon­sid­er­ing its stance toward Chi­na. “Believe me, that con­ver­sa­tion is already tak­ing place,” a senior Euro­pean offi­cial told the Finan­cial Times.

The essen­tial eco­nom­ic pur­pose of tar­iffs is gen­er­al­ly thought to be pro­tect­ing domes­tic man­u­fac­tur­ing. Here too, they could back­fire, even absent retal­ia­to­ry tar­iffs, since many imports serve as raw mate­ri­als and com­po­nents for pro­duc­tion. While tar­iffs can lead to greater Amer­i­can pros­per­i­ty in the long run, in the mean­time they spook investors and send stocks plum­met­ing. Trump, who is high­ly atten­tive to the stock mar­ket as a mea­sure of his per­for­mance as pres­i­dent, no doubt took note of this effect on Mon­day.

Of course, eco­nom­ic fac­tors are not, for Trump, the only con­sid­er­a­tion. Tar­iffs are a good way to extract con­ces­sions from world lead­ers, as Trump’s Cana­da and Mex­i­co tar­iff threats were explic­it­ly intend­ed to do. On Mon­day, under threat of eco­nom­ic calami­ty, Mexico’s Pres­i­dent Clau­dia Shein­baum vowed to send 10,000 troops to help secure the bor­der, and Trudeau agreed to ramp up efforts against fen­tanyl, a syn­thet­ic opi­oid that kills tens of thou­sands of Amer­i­cans each year.

Tar­iffs offer Trump anoth­er polit­i­cal ben­e­fit. On the cam­paign trail, Trump was can­did about his love of tariffs—“the most beau­ti­ful word in the dic­tio­nary,” he declared in October—so enact­ing them bol­sters his cred­i­bil­i­ty in the eyes of sup­port­ers.

They can also accom­plish what states that imple­ment them most hope to achieve: for­ti­fy­ing domes­tic indus­try. This doesn’t just ben­e­fit spe­cial inter­ests, but the coun­try as a whole. “Every nation… ought to endeav­or to pos­sess with­in itself all the essen­tials of nation­al sup­ply,” Alexan­der Hamil­ton wrote in 1791. Hamilton’s insight is impor­tant to remem­ber in our own age, when Amer­i­ca is depen­dent on Chi­na, its chief geopo­lit­i­cal com­peti­tor, for so many essen­tial goods.

Glob­al­ists sure­ly under­es­ti­mate the advan­tages that eco­nom­ic nation­al­ism can pro­vide, in part because the strength and suc­cess of the Unit­ed States isn’t, for them, top of mind. Still, as Trump works to make Amer­i­ca great again, he should con­sid­er all the ways that tar­iffs are a mixed bag for his coun­try, his move­ment, and his own polit­i­cal stand­ing.

To Tar­iff, or Not to Tar­iff?

Eco­nom­ic nation­al­ism brings real opportunities—and polit­i­cal risks. 

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