Donald Trump has announced 25% tariff on imports from Canada and Mexico, something which could wreak havoc on both economies.
This is a powerful tool for the Trump White House, one it could impose on almost any economy it feels doesn’t play ball.
However, it is doubtful the US would escape the full force of such tariffs which, if imposed on this scale, could augment pre-existing inflation, something which actually helped Trump to victory.
Even The Donald’s supporters would chafe at higher prices. Moreover, tariffs on such a scale could create serious economic uncertainty, with companies unsure what, where and when to invest, or what supply chains and factories to build.
The US would not escape the blowback from this. Moreover, if anything is guaranteed to drive countries closer to Beijing it is a US economic strategy which makes enemies out of friends.
Already Mexico is drawing closer to China. Does the US really want that process to continue? Should a war break out over Taiwan for example, Chinese leverage on America’s southern border could be extremely dangerous, facilitating the smuggling of weapons and paramilitaries into the US homeland.
Sticking with China, Trump tariffs could make a bad situation worse when it comes to the latter’s economy. Sounds good in theory. But if anything could accelerate a Chinese move on Taiwan it would be a sense the country has even less to lose from full-blown conflict.
Is the US ready for such a war to begin in the next five years? If so, fair enough. If not, then maybe time to pause. Because, to be crystal clear, bailing on Taiwan would permit China to project into the Pacific, pushing the US out of the region.
Not only would that smash America’s alliance system in Asia to pieces, it could also wreak havoc on the dollar given that a major reason for the dollar’s reserve currency status is the fact the US Navy is the guarantor of the sea lanes.
Little wonder markets cheered Trump’s pick as Treasury Secretary amid hope the incoming administration will not go all in on tariffs. True, some tariffs may well be positive for the US economy and correct serious imbalances in the global trading system.
But overdone, tariffs could not only harm American allies — driving them closer to China (an outcome Trump presumably does not want) — but could end up harming the US economy itself.
Promised tax cuts are likely inevitable, broadly supported by corporate America with little downside for US business, and certain to drive investment Stateside.
However, monster tariffs could end up harming the US as much as anyone else, unwinding a global trading system from which no economy benefits as much as America’s.
