TRUMP'S TARIFF FOLLY

National Review

 

Trump’s Tariff Folly

By The Editors

February 2, 2025 5:23 PM

 

After months of uncertainty, the White House has finally announced tariffs on Mexico, Canada, and China. The uncertainty since the election and especially the lack of clear communication in the past several days have caused apprehension in the stock market, which is likely part of the reason why these measures were announced on a Saturday, when the markets are closed — always a sign of confidence that an economic policy decision is the right one.

 

The stated purpose is to reduce the flow of illegal drugs and immigrants to the U.S. Trump has had success using blunt-force threats in the past, but this is a costly, disruptive way to pursue the supposed goals, and Trump may just want the tariffs for their own sake.

 

The White House is perpetuating the fiction that foreigners pay tariffs. We know from previous efforts that roughly the entire cost of the tax is passed on to American consumers and businesses. And retaliation from other countries will only make the taxes increase, as the order contains automatic hikes when the other governments respond. It is a downward spiral in which all countries will be made worse off.

 

These tariffs are far more severe than previous efforts. The China tariffs imposed in 2018 applied to about $350 billion worth of imports from a country the government views as an adversary. These tariffs are on about $1.4 trillion worth of imports, over $900 billion of which are from neighbors.

 

And tariffs this large will cause the dollar to appreciate — one effect of which is to make illegal drugs from other countries cheaper for Americans to buy.

 

The tariffs are 25 percent on all goods from Mexico and 25 percent on all goods from Canada except energy, which will be taxed at 10 percent. Goods from China, an actual American adversary, face a 10 percent tax. Past arguments for “decoupling” the U.S. economy from China relied in part on “friendshoring” to Canada and Mexico, two countries with which the U.S. has had a free trade agreement. Now, for no apparent reason, most goods from those two countries will be taxed at over twice as high a rate as those from China.

 

Trump seems to at least in part have made this move against Canada under false pretenses. He has said the U.S. trade deficit with Canada is as high as $250 billion. The trade deficit in goods was $64 billion in 2023, and $55 billion through the first eleven months of 2024, according to the Census Bureau. And excluding Canadian energy, imports of which have generally been viewed as a good thing because they substitute for Middle Eastern oil, the U.S. has a trade surplus with Canada.

 

When Trump’s administration renegotiated NAFTA as the USMCA (which basically tinkered around the edges of the original agreement), Trump said it was the best trade deal in history. Congress approved it with huge majorities in both chambers. It came into effect in 2020. Now it lies in tatters, destroyed by that same president five years later without any input from Congress.

 

No president should have the power to make such a major change to tax and trade law unilaterally, and it’s not entirely clear that he actually does. The Constitution gives the tariff-making power to Congress. It has delegated that power to the president through several different laws. The one Trump claims as authority for these measures has never before been used in this way.

 

The International Emergency Economic Powers Act was passed in 1977 and gives the president extraordinary leeway “to deal with any unusual and extraordinary threat” from a foreign country, after a national emergency declaration. That is likely why the president has raised illegal drugs and immigration as justification for these tariffs. His national emergency declarations on those two subjects essentially help to unlock the powers of this law, which are sweeping.

 

This is still a preposterous way to govern, as there are currently over 40 national emergencies in effect. Using them as a fig leaf to impose tariffs on all goods in contradiction to an existing trade agreement is clearly contrary to congressional intent. When Joe Biden abused his emergency powers, such as invoking the Defense Production Act for green energy or continuing a national eviction moratorium beyond any possible justification for it, conservatives attacked him, and rightly so. This is no different, and the consequences of the abuse could be even larger for the U.S. economy.

 

Want to help American autoworkers? They will be harmed by these tariffs, as cars cross borders several times during their manufacture. American farmers? They, too, will be harmed, when foreign retaliation shrinks their export markets. American consumers battered by inflation? They’ll be harmed by this tax hike.

 

If Trump is willing to back off and declare a “win” if Canada or Mexico take some actions that address the flow of drugs and illegal immigration — whether real or symbolic — it’s possible the worst can be averted. But if he keeps them in effect for any significant period of time, Americans will pay a severe price.