Since Trump was sworn in on 20 January, the breakneck pace of his policy rollout has been startling.
There have been attempts to buy Greenland, annex Canada, plans to move everyone out of Gaza and create the “Riviera of the Middle East”, the launch of the Department of Government Efficiency (DOGE) to hack apart public services, an Oval Office fight over Ukrainian mineral rights, and bold goals to put a US flag on Mars.
Executive orders have flowed like wine at a Bacchanalia – 76 of them before the calendar clicked over to March – covering everything from gender identity to limiting birthright citizenship, and of course, the tariffs.
Trump essentially invoked the International Emergency Economic Powers Act – granting him the authority to regulate international commerce during national emergencies – under the ostensible reason to stop the flow of fentanyl into the country.
Since fentanyl – essentially heroin on heroin – took off as the US’ illicit drug of choice in the early 2010s, it and other synthetic opioids have sparked a drastic jump in overdose deaths, reaching a peak of more than 107,000 in 2021.
“The extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl, constitutes a national emergency under the International Emergency Economic Powers Act,” a fact sheet published by the White House reads.
In translation, Trump is using the guise of a national emergency to slap Canada, Mexico and China with hefty tariffs.
While many considered Trump’s threats of tariffs in the election campaign and early days of his term as a bargaining chip to coerce world leaders to bend the knee, this week, these threats became all too real, with the President effectively declaring a trade war.
Despite earlier granting a one-month reprieve following Canada and Mexico both agreeing to implement more intense border control measures, the 25 per cent trade tariffs on both nations, alongside bumping the tariff on China to 20 per cent, have now kicked in.
On the face of it, there’s not a lot of sense in getting what you said you wanted and then still following through on the threat. Unless, of course, it was never really about fentanyl.
Quelle surprise.
The President himself has said as much, telling reporters in the Oval Office earlier this week that the tariffs are “not a negotiating tool”.
“It’s pure economics. We have big deficits, as you know, with all three of them,” he said.
“Tariffs are about making America rich again and making America great again.”
Outgoing Canadian Prime Minister Justin Trudeau – or Governor Trudeau, as Trump has started derisively referring to his northern counterpart – argued the goal of the trade war is to destroy Canada’s economy to make annexation easier.
Now, the most likely outcome on the horizon is an escalation of economic hostilities, as all three impacted nations implement retaliatory tariffs on the US and Trump rattles his sabre at his next target, Europe.
Regardless of the motivation, no one wins in a trade war; at best, their opponents hurt a little more.
Trump himself is apparently blind to this concept, stating this week: “There’ll be a little disturbance, but we’re okay with that. It won’t be much.”
In the short term, the tariffs have led to a swift reversal of stock market gains from the so-called Trump trade, with investors rapidly repositioning their portfolios.
The S&P 500 closed on Tuesday lower than when Trump was both sworn in and elected, though a slight rally on Wednesday brought it above the latter mark.
However, wiping out four months of gains (about US$3.4 trillion) so rapidly is just the beginning.
If the trade war drags on, the cost to business is expected to drive inflation and, as ever, the lower end of the socioeconomic market will suffer the greatest burden.
Despite Trump’s rhetoric that the trade war will ultimately benefit the US economy, it is more likely to result in an economic slowdown, with AMP chief economist Shane Oliver telling InvestorDaily earlier this week the tariffs “could knock 0.5 per cent off US economic growth this year potentially”.
The Wall Street Journal, which Trudeau begrudgingly referenced, declared it the “dumbest trade war in history”, while economists Phil Gramm and Larry Summers urged against implementing the tariffs in an open letter, arguing economists more broadly are “united in our belief that broad-based tariffs will impede economic growth, risk triggering a trade war, and inflicting long-term harm on the economy”.
The interconnected nature of global economies means that even countries not directly involved in the trade war – a collection of nations that could dwindle fast – will feel the pain.
For Australia, increasing costs along the manufacturing supply chain threaten to stymy the ongoing recovery from an extended period of inflation, particularly as the Sino-American theatre of the trade war heats up.
Trump appears to have taken his transactional approach to global diplomacy to its logical ends – eschewing decades of alliance and foreign policy norms in an effort to wield every ounce of leverage the great power enjoys and extract ever-increasing concessions.
In business, his “art of the deal” approach may work.
But when dealing with sovereign interests and competing motivations, it is more apt to inflame hostility and tank markets.
This all has very real ramifications for the people on the bottom-rung that are already struggling through a cost-of-living crisis.
Rather than propping up the US economy and reinvigorating domestic manufacturing, this trade war could instead blow up in the President’s face.
