When it comes to trade and tariffs, Trump’s bark may be worse than his bite

According to Donald Trump, “the most beautiful word in the dictionary” is “tariff”.

It says much about the US president-elect’s values – doubtless, we can all think of plenty of other words – but that’s his choice and we have to live with the consequences.

Today, true to his selection, we received an inkling of what is to come as he fired the first salvo, promising to impose levies of 25 per cent on all imports from Canada and Mexico and an extra 10 per cent on Chinese goods. They will come into effect on his first day in office. The tariffs would remain “until such time as Drugs, in particular Fentanyl and all Illegal Aliens stop this Invasion of our Country”, Trump posted on Truth Social.

The use of capitals is indicative. This is going to be a commander-in-chief, who for now anyway, brooks no opposition, who sees trade as a way of imposing social, domestic policies on other nations.

Part of Trump’s beef with China for instance is that Beijing has not followed through its pledge to subject people found dealing the deadly synthetic opioid, fentanyl, to the death penalty. With Mexico, it’s the perceived failure to crack down on the “onslaught of criminals and drugs” crossing the US border. He’s also determined to target the import of Chinese cars from Mexico, threatening “whatever tariffs are required – 100 per cent, 200 per cent, 1,000 per cent”.

There is no doubt Trump means what he says. Greater protectionism, safeguarding American economic and security interests, was a key plank in his election campaign. Here we go then, and he hasn’t even reached the White House.

As far as Canada and Mexico are concerned, the US has free trade pacts with both. No matter. The new president can override them using his executive powers. The world should expect more of the same. Previously, as well as attacking Chinese cars from Mexico, Trump has spoken of 60 per cent charges on goods from China and 10 or 20 per cent duties on all trading partners, including the EU. Britain is pleading to be treated as a special case but it’s by no means certain, given Sir Keir Starmer’s difficult relationship with Trump, if it will succeed.

Even the very prospect of tariffs can be dampening. This morning, the currencies of China, Mexico and Canada dipped.

For now, their responses are muted. China is presenting itself as a guardian of open trade, citing irreversible globalisation; Mexico is complaining his move will not solve the border issue and only hurt people’s pockets; Canada is pointing out it’s the US’s strongest trading partner and last year supplied 60 per cent of US crude oil imports.

The international belief is that Trump is playing a negotiating game, that the veteran Manhattan real estate developer is intent on getting under their skin and forcing other nations to come to his table.

That was the ruse Trump adopted for his first administration. The likelihood of tariffs was deployed to obtain more favourable deals from the US’s trading partners.

Nor was Trump alone. Joe Biden used tariffs on Chinese clean-energy imports, including electric vehicles, and he’s consistently demanded more action to control the import of chemicals used to make fentanyl.

Trump’s approach, though, is typically eye-catching and direct. It’s also characteristically simplistic. The reality is that markets are bound together, supply chains are intrinsically linked. The world is complex, more so than he lets on.

Trump has declared “Mexico is not going to sell one car into the United States”. Last year, Mexico delivered 2.55 million vehicles to the US. That’s a huge number of automobiles and a vast amount of resulting poverty if he stops the traffic completely. And that deprivation will only cause more people to turn to crime, to the drug trade and head where the money is… north to the US.

He would hurt the multinational carmakers, who have large facilities in Mexico. But he would also be harming America’s own: Ford, General Motors and Stellantis manufacture cars and trucks in Mexico, for sale there and in the US.

His policy ignores too the fact that firms affected by tariffs might try and absorb the cost but ultimately the price would be borne by consumers. Trump wants to bring down inflation, but by launching trade wars he will be doing the opposite. Aviation manufacturers, for example, will pass on the prices of new aircraft to their customers, the airlines, who in turn will increase fares for their passengers. That’s what happened in 2020 when the Trump government slapped levies on Airbus to try and curb European aviation subsidies.

Pretty much everywhere you look there is close alignment and intertwining, whether it’s ingredients and components or the finished product. America can strike, but other nations are capable of retaliating. Many US corporations are themselves exporters.

Trump sees it differently. He’s no fool. It suits him to take a blinkered view and avoid the wider picture. Once in power, he, and we, may not find it so straightforward.