Despite protestations from Donald Trump that tariffs he began imposing on Mexico, Canada and China yesterday will have no harmful side effects, it seems clear that selected goods from those countries will be costing more in no time flat. The tariffs will begin now but will include a process for the countries to seek specific exemptions for certain imports.
With 25 percent import fees, we likely will see the cost of Mexican fruit and vegetables rise nearly immediately, for example, and the cost of rebuilding in Los Angeles just increased in cost for the Canadian lumber for construction. The 10 percent on goods made in China may be less, though as with all tariffs, the real cost is paid by U.S. importers who pass it along to consumers buying everything from tee shirts to electronics.
What strikes as most interesting is Trump’s desire to use tariffs as a policy weapon rather than to guide good economic strategy,
According to Axios news, an analysis from the nonpartisan nonprofit Tax Foundation estimates the cost this year as $830 per household — depending on whether there are exceptions for various industries included in the final announcements. We could see fuel pump prices rise, though Canadian oil producers were given a 10% tariff rather than 25%.
Financial markets were reported edgy about the impact of prices, and many businesses had already been ordering parts or goods in advance of tariffs. Looked at from a bigger economic view, the announced tariffs could shrink national output by 0.4%, bucking the trends of the last few years. On the other hand, tariffs generally protect U.S. jobs, though manufacturing has become so complicated across international borders that it is a bit hard to know the effects for sure.
Political Goals
The tariffs policies that Trump seems to embrace so tightly are being used for non-economic, political reasons. Tariffs bolster his self-image as a strongman able to send a bullying message even to our biggest trade partners, a tool to stall migration through Mexican and Canadian borders and towards stopping drug smuggling.
The tariffs announcements came as Secretary of State Mario Rubio is visiting Panama, where canal takeover ideas loom, and other Central American countries, where Rubio will repeat the threat of like tariffs as economic sanctions unless there is acceptance of deportees. Richard Grenell, a Trump special envoy, is carrying the same message to Venezuela.
The whole idea of tariffs runs against the basic idea of the three-country free trade agreements that Trump renegotiated and signed during his first term. Whether he and other presidents were right then about a need for a greater American free marketplace seems irrelevant or forgotten; he thinks it wrong now. Trump put tariffs in place against China then — which Joe Biden kept — and he is threatening to use them as an economic weapon against friend and foe now.
Last week, the temporary target was Colombia, which had blocked two deportation flights before agreeing. The tariffs threat was removed. This is not about economics.
The problem with unleashing unilateral tariffs is that they will ricochet with Mexican, Canadian, and Chinese tariffs, and likely will spread to other countries quickly. Trump gave Mexico and Canada two weeks to satisfy him, not them, that they were taking sufficient steps to halt migration and to accept deported migrants even from third parties, and set yesterday as an arbitrary deadline. Both countries insist they have taken such steps, but Trump has decided it is not enough.
Living With Consequences
And so, tariffs. And higher consumer prices for you and me. We can also expect the loss of markets for U.S. farmers or manufacturers from the retributive tariffs set by China or other targeted nation.
Trump insists that tariffs will not raise prices, and points to his first term, when inflation was low enough that no one complained. Trump also regularly says that it is the foreign nation that pays into our treasury, when, in fact, it is American importers who pay the freight and then raise prices.
Trump suggests that we don’t need the goods from other countries, including Canada, which seems an oversimplified, hyper-nationalistic view of industrial supply lines. Businesses have adjusted to a free-trade zone with Mexico, for example, and car manufacture is a cross-border process of providing parts and finishing autos. China has simply moved whole plants to Mexico to get around tariffs.
Those Tax Foundation researchers also found that tariffs Trump levied during his previous presidency — and which former president Biden enacted during his own — have hurt the economy.
The Tax Foundation’s analysis suggests the first Trump administration imposed nearly $80 billion in new taxes (Biden added $3.6 billion by keeping them) that someone had to pay for. That same group previously found that tariffs raised prices, reduced output, lowered employment and produced a “net negative impact on the U.S. economy.” In a letter to lawmakers last month, the Congressional Budget Office also estimated that the tariffs would spur price hikes on consumer goods initially, though after 2025, the tariffs would not have any “additional significant effects on prices.”
