The Economic Anomalies of Trump's Tariff Activism

As published in Policy Magazine by Tom Gallagher and Kevin Nealer

Even as there is new evidence of the near-term negative impact of Donald Trump’s tariffs on the US economy, Trump’s recent, unprovoked escalation of duties on Canada prompts the question: Where is US trade policy headed and what long-term systemic changes does it portend for bilateral trade and investment?

There are two underappreciated structural features of Trump’s tariff activism that are rewriting supply chains and investment patterns in North America and globally. Understanding why they are different from past trade activism is essential to right-sizing the Trump tariff risks now and going forward.

First, after WWII, the US presided over successive reductions in government’s role in the international economic sphere. This was based on a positive-sum view of trade. Key to realizing those benefits were highly credible commitments on trade and investment that were honored by subsequent presidents and incorporated into global regimes by trading partners.

The largest previous burst of protectionism — under President Ronald Reagan —consisted of short-term measures designed to accommodate political pressures for import restraint before returning to the long-term trend of more open and expanding trade. Reagan’s tariff and quota regimes (for steel, autos, semiconductors) were time-bound, as tariffs are meant to be under international rules.

Trump’s tariffs are meant to permanently rewrite trade flows and address systemic deficits, not to placate short-term import sensitivities. They promise no goal or end date, and nothing the affected country can do will stop them. They are in no sense negotiations since trading partners are offered nothing in return for their compliance save the end of contrived, coercive uncertainty via the dubious reward of a fixed long-term duty

Read the full paper here.