WHY DONALD TRUMP´S PROTECTIONIST ZEAL HAS ONLY GROWN / THE ECONOMIST

Worse to come

Why Donald Trump’s protectionist zeal has only grown

Lessons from a week of chaos

Donald Trump’s supporters celebrate him as a man who says what he means and means what he says. 

The trade crisis he ignited over the past week has provided more proof, if any was needed, that this reputation is undeserved. 

Yes, Mr Trump has been clear that he loves tariffs, but he is vague and even misleading about what this ardour means in practice. 

That has made for a remarkably chaotic start to his new administration, with businesses, investors and other governments all trying to figure out exactly what he wants—and most now bracing for more turbulence.

Not once in the lead-up to the election did he mention the possibility of tariffs aimed at both Canada and Mexico, America’s biggest trading partners. 

Yet his first move on trade after taking office was to announce hefty levies on the pair, threatening to blow up a North American pact renegotiated in his first term. 

As justification, he invoked an emergency on America’s borders from an influx of drugs and illegal migrants, only to then say that what really bothered him was America’s trade deficit. 

Meanwhile, his most radical campaign proposal—a universal tariff on imports—has, for now, been supplanted by talk of more targeted levies.

In the gap between rhetoric and action, plenty of space exists for others, including his own advisers, to impose their own interpretations of Mr Trump’s trade plans. 

Some see him as a masterful negotiator, using tariffs primarily as leverage in negotiations—a view endorsed by Scott Bessent, his treasury secretary. 

Others see him as a wrecking ball who will destroy an unfair system of international commerce rigged against America—the belief of Peter Navarro, one of his most hawkish advisers. 

Parsing these interpretations is difficult when the policies Mr Trump pursues, and his cited rationales, change so frequently.

The drama of the past week has nevertheless yielded a few important lessons. 

Most alarmingly, Mr Trump is proving far more aggressive than in his first four years in office. 

Back then, Robert Lighthizer, America’s chief trade representative, oversaw investigations before gradually imposing tariffs. 

Jamieson Greer, set to be America’s new chief trade representative, will only have his nomination hearing on February 6th (after The Economist goes to press). 

Yet Mr Trump has already announced tariffs that would have been more extreme than any of his previous actions.

During Mr Trump’s first term, China was the main target of his tariffs, which ended up applying to $380bn-worth of goods. 

His new tariffs would have covered $1.4trn-worth of imports from Canada, Mexico and China, or about 40% of America’s total imports. 

Although Mr Trump ultimately suspended his proposed tariffs of 25% on Canada and Mexico for 30 days, those on China—an additional 10% levy on top of existing duties—have gone into force. 

And these extend to goods such as iPhones, which Mr Trump had previously excluded from extra duties to shield consumers from higher prices.

Mr Trump’s new tariffs also arrived suddenly. 

In his first term he provided months-long notice to affected firms. 

This time, he announced the tariffs on February 1st, and importers were due to start paying the levies three days later. 

Mr Trump has also let it be known that he is far from done. 

He has said that he will “absolutely” implement tariffs on the European Union and has pledged to slap levies of as much as 100% on Taiwanese semiconductors. 

“He has come right out of the starting gate, going after our close friends and allies,” says Douglas Irwin of Dartmouth College. 

“He is so much more brazen.”

A second lesson is that Mr Trump is a true believer in tariffs, seeing them as a singularly effective tool for achieving multiple objectives. 

This is why there are so many different interpretations of his philosophy: they can all apply at different times. 

Mr Trump unquestionably views tariffs as leverage, and is not wrong that America, the world’s largest importer, has an advantage in any trade war. 

Consider the country’s relationship with its neighbours. 

Exports to America are worth roughly 20% of Canadian GDP and 30% of Mexican GDP. 

By contrast, American exports to Canada and Mexico combined are worth just 3% or so of American GDP.

Mr Trump believes that tariffs can be a large revenue source, too, helping wean America off income tax. 

Never mind that any reasonable estimate shows they would pay for only a fraction of federal spending. 

Mr Trump also thinks tariffs will prompt a manufacturing renaissance—another idea scoffed at by economists since tariffs raise input costs and shield inefficient producers. 

Mr Trump’s belief in tariffs can thus be said to be overdetermined. 

“We don’t want to predict the timing because it’s impossible. 

But at the end of the day are we going to get significant new tariffs on lots of different countries? 

I think the answer is ‘yes’,” says Andy Laperriere of Piper Sandler, an investment bank.

A more hopeful lesson is that even a true believer must come into contact with reality. 

This was shown by Mr Trump’s suspension of his tariffs on Canada and Mexico. 

Although America had a stronger hand than either, the tariffs would have done serious harm to American manufacturing, especially American carmakers, who, encouraged by decades of free-trade deals, have come to rely on factories in Canada and Mexico. 

A 25% tariff could have wiped out the profits of Stellantis, General Motors and Ford, the “big three” automakers in Detroit, according to Barclays, a bank.

The impact might have been greater than a 25% surcharge on vehicles and parts made in Canada or Mexico would suggest. 

Some vehicles cross America’s borders up to seven times as components are assembled into bigger and bigger units, and they would have faced fresh tariffs each time they entered America. 

Certain production lines could have ground to a halt. 

“As prepared, this was a tactical nuclear weapon” for transnational supply chains, says an executive at the US Chamber of Commerce, an influential lobby group.

Slam the breaks

Mercifully, the memo reached Mr Trump. 

Although American firms are still desperate to curry favour with him, they mounted a pushback behind the scenes. 

Publicly, they also aired concerns. 

The American Farm Bureau, a lobby group sympathetic to Mr Trump, warned that its members would “bear the brunt of retaliation”. 

United Steelworkers said that “lashing out at key allies like Canada is not the way forward.” 

Having based so much of his election on Joe Biden’s mismanagement of inflation, Mr Trump may also have been sensitive to warnings that his tariffs would drive up everyday prices and make him unpopular.

These messages were reinforced by markets. 

As investors absorbed the tariffs, stocks fell, oil prices rose and currencies weakened against the dollar. 

Then, amid a flurry of telephone calls between Mr Trump and Claudia Sheinbaum, president of Mexico, and Justin Trudeau, prime minister of Canada, it became clear a trade war was not about to break out—or at least not yet. 

The market moves went into reverse. 

Now you see the damage; now you don’t.

This will not be the last contest between Mr Trump’s love of tariffs and economic reality. 

His plans are historic, in a bad way. 

Mr Irwin calculates his proposals on February 1st would have lifted America’s average tariff on dutiable imports by ten percentage points, twice the rise under the notorious Smoot-Hawley tariffs of 1930. 

Although America’s tariffs were higher in that era, goods imports have gone from 3% of GDP back then to 11% today.

One might, therefore, expect markets to react swiftly and negatively to any big announcements by Mr Trump in the months to come. 

But his de-escalation, welcome though it is, has set up a paradox. 

Many are now convinced that as much as Mr Trump likes to bully other countries, he does not want to trigger a stockmarket rout. 

This belief may end up limiting sell-offs in future disputes as investors assume Mr Trump, sooner or later, will back down. 

Calmer markets could, in turn, let Mr Trump stick to his protectionist guns.

It is also not obvious that business will be as determined in pushing back next time. 

Given how many firms have tight links with Canada and Mexico, they were highly motivated to oppose tariffs on these countries. 

They do not have the same density of supply chains elsewhere. 

As such, they will lobby for specific exemptions from tariffs on, say, Asia or Europe, but may be more restrained in trying to stop Mr Trump’s broader programme.

Other checks on Mr Trump’s protectionist zeal will be even weaker. 

The president is unlikely to face much opposition from either Congress or the courts. 

Broad laws such as the International Emergency Economic Powers Act (IEEPA) allow Mr Trump to impose duties so long as he cites a national emergency as justification. 

Courts have not considered such sweeping use of a president’s trade authority before, but trade lawyers think Mr Trump would prevail against legal challenges given the breadth of his delegated authority. 

Even if judges do place limits on IEEPA, Mr Trump can draw on other statutes.

The erstwhile free-trading instincts of Republicans are certainly not standing in Mr Trump’s way. 

Only a few true believers, such as Ron Johnson and Rand Paul, two senators, have lodged objections on Reaganite grounds. 

Most of their peers have accepted that they must grin and bear Mr Trump’s declarations—and undeclarations—of trade war. 

They will remain reticent for as long as their constituents do not feel themselves to be harmed.

During Mr Trump’s first term he faced opposition within his own administration. 

During one alleged incident, Gary Cohn, his top economic adviser, swiped a letter from his desk that would have led to America’s withdrawal from a trade agreement with South Korea. 

In the current White House, Mr Trump is surrounded by loyalists who hew closely to his vision, making such defiance unthinkable. 

That hints at the most important lesson from the past week: Mr Trump wants to go at speed and there are few obstacles in his way.