(5 minute read)

• Trump’s “Radical” Economic Overhaul: New Tariffs & a Reshaped America.
• MAGA’s Future: “Cooperation Through Domination” – Trump’s Bold Gamble on U.S. Jobs & Global Standing.
• Trade War Escalation: U.S. vs. China, Canada & Mexico – What It Means for Your Wallet

By William Willis and Yassa Ahmed

On the 21^st of January, Trump dances with his wife, Melania, on the evening of the inauguration ball, the next night he is sworn in for the second time as President of the United States. Trump has made many campaign promises, signing executive orders within an hour of taking office, and seeking to usher in changes to set out his view of what, or how, American lives should look like.

In the World Economic Forum, he jostled between invitations to be partners with America, and build up its industry, or be subjected to a new round of protectionism. He flexed his muscles, even mentioning Canada as a potential new state. Trump wants to make good on his promises. Recently, he has begun to place duties of 145% on all imports from China and levied 25% on goods from Canada.

Donald Trump exists as a legendary figure (while still being alive), and this narrative of him as the strongman for Americans that will bring prosperity back to an ‘ailing’ nation, seems to support this mythos and bodes well with his voting core. Cooperation through domination of your allies or enemies is a far cry from previous US policy, or even Trump’s first term as US president.

To what extent this is all achieved and what needs to be achieved is a part of the fact and fiction of this leader. As the next four years of international relations will swing by in front of us, how it is shaped for global economics is determined by this president.

A War of Attrition: Trade Barriers All Round

In Trump’s first term, the North American Free Trade Agreement (NAFTA) was replaced by the United States-Mexico-Canada Agreement (USMCA). It served many of the ambitions of Trump’s economic plans in the beginning: a stronger automotive sector, with regulation on Canadian and Mexican car manufacturing, complementary environmental protection and increases in duty-free limits for Canadians who bought US goods online.

But with the new administration citing the failure of USMCA members to stem illegal immigration and illicit-drug trade across the US Borders, it has put a fork in the road for these three ‘partners’. “Canada and Mexico are on the front line of managing Trump’s new trade war” stated Nadjibulla, vice president of research and strategy at the Asia Pacific Foundation of Canada.

Something that Mexico and Canada balance by threatening retaliatory tariffs, but at the same time, shoring up their borders in line with American needs, with Washington rewarding them with brief pauses on the imposition of tariffs. It fits the narrative of this administration, having allies pay their dues by bending to the American will. Yet, one that was not already in line to some degree with what Mexico and Canada were already going to do.

Trump’s tariff diplomacy works well to win concessions “beyond the economic” in “buying time to enable the development of a new industry or business, or to enable an appropriate labour force to be created,” said Bill Canady. Lest we forget, tariffs are nothing more than a barrier creation towards the supply of goods. Long stretches of cross-border trade disruptions take us closer to the same inflationary environment seen during the Coronavirus.

Labour Market Impact

Who really faces up to the cost of tariffs? Beyond the twin threats of pain for you and pain for me, ushered in by Trump’s admission of “some pain” in the US, does business benefit? The Financial Times found that US companies were “responding to rising geopolitical tensions”… “by seeking to bring manufacturing home.” Correctly, difficulties do grow when your firm has to pay more for imported goods from Canada or Mexico.

Problem is “any initiative that seeks to bring more jobs to America” has to compete with “a lack of properly skilled workers” the article continued. In fact, a domestically vertically integrated supply chain would require every function operating at an effective enough stage to warrant bringing onshore, of which global markets provide a better opportunity to find those pieces.

Something Trump realised during his Liberation Day tariffs is that ‘economic independence’ by placing duties on most countries begets more uncertainty for job security in America, as he would crash the market on April 2^nd. Only to reverse his decision as he announced a 90-day pause on tariffs for most countries outside of China. However, talks are currently underway, floating the potential to slash tariffs to Beijing to 80%.

The openness of the US economy is in a greater sense of jeopardy with tariffs looming over economic activity than ever. How much of what the president marks out as legitimate causes for duties is correct, or if it is all just posturing to extract preferential treatment from other countries, is hard to discern. What is readily available for us to understand is that the broader economic impact of bringing jobs back to Americans is that households will need to prepare for a bumpy road before it is achieved.