Donald Trump, the illegitimate President of the United States of America, declared that all imports from Canada, Mexico, and China will be subject to a 25% tariff, from February 4, 2025, onwards.
There is no plausible reading of the trade among Mexico, the United States, and Canada that would even begin to justify these measures. Indeed, Trump’s previous administration renegotiated the free trade agreement among these countries.
The North American Free Trade Agreement (NAFTA for short) was an expansion of a free trade deal between the United States and Canada negotiated by Republican president Ronald Reagan in the 1980s. Subsequent administrations worked on trade liberalization, and on January 1, 1994, NAFTA came into force under President Clinton.
All three countries were aiming to join an even bigger free trade zone, the Trans-Pacific Partnership (TTP), the largest free trade agreement that the world has ever seen. “It is huge, big” Donald Trump might say if he had not stupidly withdrawn from it. It continues without the United States under a new name, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Trump saw fit to renegotiate NAFTA with the new treaty, now called laconically United States–Mexico–Canada Agreement (USMCA) retaining most of the provisions of NAFTA. One might be tempted to think that the only real change was the name because according to the infinite wisdom of Donald Trump, NAFTA was “the worst trade deal maybe ever signed, anywhere.” (To my disappointment, he did not say: “This has been the worst trade deal in the history of trade deals, maybe ever.”)
Trump wanted to wreck another free trade agreement, the deal between the US and South Korea (KORUS). He was thwarted by Gary Cohn who literally snatched the withdrawal documents from the president’s desk, as reported by the famed journalist Bob Woodward.
Not having the grown-ups like Gary Cohn in the administration any longer and relying solely on 20-year-old groypers, Donald Trump now finds himself finally at the culmination of 40 years of his pataeconomic theories (compared with pataphysics), effectively withdrawing from USMCA, arguably the GATT (WTO) and possibly other agreements overnight, in a move better suited to the Juche ideology of Kim Jong Un about whom Trump said: “Kim Jong-un [is] very smart, very tough, but he liked me, and I got along really well with him, and we were safe.”
It might be worthwhile to examine the Smoot-Hawley Tariff of the 1930s – now, nearly a hundred years later, generally regarded as a stupid policy that deepened the Great. (The sponsor of which has no relation, except for stupidity, to the current insurrectionist Senator Josh Hawley.)
The Smoot-Hawley tariff raised the tariff rate by 19 percentage points or by about half from the previous base of 40%. However, 63% of goods were not subject to the import duty. Compare that to an increase of 25 percentage points, and an infinite multiple of the current base rate of 0. The vast majority, if not all goods, are subject to this tariff as Trump has not even declared a “de minimis” exception for small purchases, gifts, etc.
Canada, Mexico, and China are the three largest trading partners of the United States, together taking 41.1% of all US trade (41.7% of imports). The European Union – next on Trump’s Juche agenda – is fourth, bringing the total over 50%.
Which of these policies is worse? We are going to find out very soon.
And what should our response be? Canada’s outgoing Prime Minister Justin Trudeau, holding back tears, has addressed Americans:
As President John F. Kennedy said many years ago, geography has made us neighbors. History has made us friends, economics has made us partners and necessity has made us allies.
That rang true for many decades before President Kennedy’s time in office, and in the decades since, from the beaches of Normandy to the mountains of the Korean Peninsula, from the fields of Flanders to the streets of Kandahar, we have fought and died alongside you during your darkest hours during the Iranian hostage crisis. For those 444 days, we worked around the clock from our embassy to get your innocent compatriots home.
During the summer of 2005, when Hurricane Katrina ravaged your great city of New Orleans, or mere weeks ago when we sent water bombers to tackle the wildfires in California. During the day the world stood still, Sept. 11, 2001, when we provided refuge to stranded passengers and planes. We were always there, standing with you, grieving with you. The American people.
And announced the implementation of tariffs targeting mainly producers in Republican areas of the United States, echoing reciprocal measures taken by the European Union that targeted “US jeans, motorbikes, bourbon, and other items.”
The best trade policy is zero tariffs and free trade. Second best trade policy is unilateral free trade (like Singapore has). Tariffs hurt the economies of both countries. However, this is a repeated game and I have reluctantly come to the conclusion that countries affected by any of Trump’s stupidity must take retaliatory measures.
And while we were optimistic under the previous Trump administration that this was a four-year nightmare that was about to end and people would learn, the outlook now is a lot bleaker with Trump and his henchman violating every norm and every law on the books and running roughshod through the Constitution and international treaties. Who is to say that four years from now, there is likely to be a “normal” US government again? We must seriously begin preparing for a world where the US is not a reliable partner in trade, justice, defense, and other critical domains.
I personally love America, so this makes my heart ache. But is there any other way?