Hey y’all,
After months of talk about “the most beautiful word in the English language,” President Trump announced his initial tariff plans yesterday.
On Truth Social, he detailed his plans for a 25% blanket tariff on Mexico and Canada, and a 10% tariff on China, both with the announced end goal of stopping the flow of illegal immigrants and drugs from these countries.
Of course, President Trump’s plans have met with vocal criticism from both sides of the aisle.
On the Left, many will point to them as an antiquated and somewhat unhinged form of foreign policy that ultimately, by their argument, hurts Americans more than the country the tariff is imposed on.
But even on the Right, advocates of free trade and free markets often oppose tariffs as clear impediments to those end goals.
In my opinion, the truth lies more in the middle.
I’m a pretty big believer in free markets and free trade, and I think Americans deserve to be able to get the highest quality product at the lowest possible price, which can usually only be accomplished through global trade.
So in general, I don’t like policies that invoke tariffs.
But the mistake I see many analysts make is in assuming that the tariff itself is the end goal. With Trump, at least, that is never true.
Trump threatens tariffs as a negotiating tactic and always has.
In this case, Trump was on the phone with Canada’s Justin Trudeau just moments after making the blustering threat on Twitter.
Of course a 25% tariff on all Canadian goods would put a high burden on the American consumer. But it would undoubtedly do even more damage to the Canadian economy.
According to the below graph, fully 75% of Canada’s exports go to the United States.
Mexico, for its part, recently passed China as America’s leading trade partner.
If President Trump’s policies go into effect, all three countries will suffer a high cost, and that’s a big “if.”
Whatever Trump’s flaws as a person or a leader, the author of The Art of the Deal has always had a shrewd mind for negotiating.
And when it comes to international relations, the #1 thing you need on the table is leverage.
If you don’t have anything to surrender when you come to the table, there isn’t a lot of room to move.
There’s a great episode of The West Wing (I know, I’ve talked about that show a lot lately)…
President Bartlet is playing chess with several members of his staff while talking about an ongoing crisis in the South China Sea, where Taiwan wants to test missiles and China is threatening expanded military action (sounds a little TOO familiar)…
In the episode, the President has ordered a carrier group to move into the South China Sea, a move that would certainly threaten China’s autonomy and control over the region, even if the ships remained technically in “international waters.”
But as the episode unfolds, you learn that this was all a bluff. The order to move the ships was a false flag just so Bartlet could cancel the order and appease the Chinese. He never wanted the ships there in the first place.
But he had to show strength in order to give the Chinese something back in the negotiation.
In my political science classes, they called that brinkmanship. You push all the way up to the edge if you have to to make your point, without ever intending to go over it.
With Trump, there is a lot of madness. But there is at least occasionally a method behind it.
And when it comes to tariffs, I don’t think he wants to impose them nearly as much as he wants to threaten them.
If China and Mexico take serious steps to curb the flow of immigration and drugs across the border, and become partners on that front, then I doubt we’ll ever see tariffs imposed at all.
Right now, as I write this, the markets are showing mixed results this morning, but they certainly don’t seem to be panicking over President Trump’s biting tweets, or… rather… Truth Social…eets? I don’t know what the word is for that.
But either way, I hope you’re having a great Tuesday.
To your prosperity,
— Stephen Ground
Editor in Chief, ProsperityPub
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