The Tariff Man Rides Again: America First? More Like America Taxed
With his tariffs on allies and rivals alike, Trump is proving that economic warfare comes at a steep price—for America.
The Tariff Man Cometh—and America will pay the price. History warns that trade wars rarely end well, and as Trump doubles down the real losers will be U.S. businesses and consumers. Trump’s trade policies will raise prices, erode alliances, and leave America increasingly isolated in the global economy.
Waves of economic nationalism has swept across Canada as Donald Trump’s tariff announcements provoke a spirit of ‘Buy Canadian’. Across newsagents, grocery shop windows and supermarkets, signs proudly declare ‘Made In Canada’.
When Ontario premier Doug Ford wore a ‘Canada Is Not For Sale’ hat to a meeting, it lit the dry tinder of Canadian patriotism. In Ottawa one design firm managed by Liam Mooney and his partner Emma Cochrane informed Financial Times reporters that the sales-jump for their ‘Canada Is Not For Sale’ hats have rocketed.
The scale of Canuck fury at the economic war the Trump administration has declared on them found expression at the NBA game in Toronto when the US national anthem was roundly booed. Mere days into Donald Trump’s Presidency and his blatant disrespect toward one of America’s closest allies has already provoked a defiant Canadian patriotism.
Three things you need to understand about tariffs
On Feb. 1, President Donald Trump imposed tariffs on Canada, China, and Mexico — the United States’ largest trading partners. But to understand the harm done by the USA’s first ever felon-President you need to understand three key things about tariffs.
Any tax imposed on imports effectively acts as a tax on exports as well
America imports lots of Mexican steel, something many pro-tariff MAGA advocacy groups frequently highlight. In 2022, the United States imported around 4.8 million metric tones of steel from Mexico, which represented an increase from the average 2.8 million metric tones imported between 2015-2017.
Impose a 25 per cent tariff on Mexican steel and aluminium and sales to the USA will slide. Seems like a win for American steel manufacturers, after all they can now expect less competition.
But manufacturers using steel—like carmakers and construction firms—will also see their costs rise, as supply chains are disrupted and more efficient production chains are replaced with hastily improvised less efficient alternatives. All of which also contributes to higher prices for vehicles, appliances, and new buildings.
Also worth remembering that American carmakers and construction firms are not operating a charity. The tariff on Mexican steel simply allows them to both increase their market share and raise their prices enough to increase their margins at US consumers’ expense.
But wait, did you know that Mexico is the largest buyer of US corn? In the 2022 - 2023 crop year, Mexico received 38.4 per cent of the US corn exports.
As prices climb on items manufactured using steel, American consumers and businesses will have less money to spend on other goods, including food. That means restaurants, grocery stores, and food processors will cut back, weakening domestic demand for agricultural products like corn. At the same time, Mexico, frustrated by the tariffs, may respond with its own tariffs on U.S. corn, reducing exports and pushing prices down for American farmers.
My point? A policy predicated on the idea it would protect U.S. steel producers ends up hurting U.S. corn farmers—demonstrating that a tax on imports is also a tax on exports. And all along the process consumers will lose out.
Other examples abound, such as American’s favourite beer Modelo Especial, brewed in Mexico. 25 per cent tariff on imported Modelo and sales slide, but so too would U.S export sales of barley to Mexico.
In both cases I have outlined we see how a tariff tax on U.S imports (Modelo, Steel) also serves as a tax on U.S exports (corn, barley). Any economist will tell you that as prices in exporting sectors such as barley, and agriculture generally, will decline in proportion as prices in the importing sectors rise.
All products are also inputs
Journalists when discussing tariffs have an understandable instinct to make it more relatable to households. This is often why the focus will be on discussing the price impacts on everyday items for consumers. But this disguises something important that you need to understand. The biggest harm inflicted by tariffs comes in a form most people do not see or realise.
So rather than talk about the price of Modelo beer (or eggs), let us discuss Vitro. It is is the largest glass producer in Mexico and one of the world's largest organizations in the glass industry. Founded in 1909 in Monterrey, Mexico, it remains headquartered there.
Now few of us will be in the market for purchasing large flat glass, but we are interested in buying that new apartment. Guess what happens if Trump imposes a 25 per cent tariff on Vitro large flat glass production? It means the costs for construction companies building the those new affordable apartment blocks goes up.
Equally, most of us will only worry about the price of aluminium when we are in the market for canned goods. But many of us really want to be able to fly on that plane for that affordable budget holiday. Put a tariff on aluminium from Mexico or Canada and guess what? The cost of building, operating and repairing that plane you need a seat on rises.
Sure, politicians in MAGA world will readily blame greedy airline companies, but the reality is that products are also inputs. Tariffs on industrial glass from Mexico’s Vitro makes the cost of your new home go up. Tariffs on aluminium raises the price of your airline tickets.
Once again, tariffs mean consumers lose out, because products are also inputs.
American memories might be short, but others will remember their past actions
When China suffered from President Trump’s 2018-2019 trade war, Beijing undertook a slow but increasingly successful policy of decoupling its reliance (or exposure) to the U.S.A.
Even when President Xi Jinping and Donald Trump called their truce on January 2020, despite pledges from China to increase imports from America by £200bn over two years this never materialised. In fact, China did not even match pre-trade war levels by 2021. Instead, Beijing realised the necessity of diversifying its export markets away from the United States in the future. Americans might not remember their past actions, but Chinese people do, and subsequently took actions which have come at the longer term expense of US wealth.
Newly released data from 2022 show that US exports are falling farther and farther behind foreign peers also selling into the Chinese market. Once major US manufacturing exports—like automobiles and Boeing jets—have all but disappeared. Semiconductor sector sales tailed off in 2022 and also may not return, due to new US export control policy. US services exports plunged during the pandemic and have not yet come back.
China has learned from the 2018-2019 tariff trade war and has steadily reduced its economic exposure and dependence with the United States, instead increasing exports to the European Union. Trump’s trade wars of the past have helped accelerate the deterioration of the strategically important bilateral China-US relationship, while also eroding U.S exporters market share in the second largest economy on earth.
American memories might be short, but others will remember their past actions. I am willing to bet that Canada, Mexico and in the future the European Union will also remember the American past actions, and react strategically at US global economic expense.
American voters in MAGA world will soon learn that there are no free punches in the playground of international trade, economics or politics. And America First will very likely mean America Alone.
My work is entirely reader-supported. To receive new posts and support my work, please consider becoming a free or paid subscriber
Alternatively why not make a one-off donation? All support is appreciate