In Ottawa, Mexico and Beijing, there is uproar over Donald Trump’s threat to impose tariffs on all their exports.
Donald Trump sees tariffs as a cure for almost everything that ails his country. To understand the threat it poses to us, it is important to understand why.
The most beautiful word in the dictionary
The word tariff Although he may be, in Donald Trump’s opinion, “the most handsome in the dictionary”, he does not have a very good reputation.
Indeed, one of the worst policy decisions in U.S. history was the Smoot-Hawley Tariff Act (1930), which made the Great Depression worse. Conversely, free trade is largely associated with the country’s post-war prosperity and international leadership.
The story that Trump prefers is that of the end of the 18e century, when high tariffs ensured the income of a minimalist central state and the rich grew fabulously rich by paying little or no tax.
The tariff is also, in his eyes, the ideal weapon to counter the rise of China and sanction the allies, whom he sees as parasites living at the expense of the United States.
Furthermore, Trump systematically lies about tariffs by claiming that foreigners pay them and that they are a nearly inexhaustible source of revenue. This is false. During Trump’s first term, it was consumers who paid the tariffs on Chinese goods, the revenue from which was mainly used to offset the gargantuan losses of American exporters.
Arbitrary power and crony capitalism
What makes tariffs particularly attractive to an autocrat is their arbitrary nature. Although the Constitution grants Congress the power to regulate commerce, multiple exceptions grant broad autonomy to the president to enact tariff policy.
It is the ideal instrument for distributing favors to friends of the regime. As economist Paul Krugman points out, this kind of crony capitalism (“crony capitalism”) was well established during Trump’s first term and it looks even worse for the second.
The threats to Canada and Mexico are a fairly clear example of Trump’s predilection for arbitrariness. Indeed, his ultimatum orders both countries to stop fentanyl trafficking and illicit migration. However, it is extremely difficult, if not impossible, to measure these phenomena or to evaluate the impact of Canadian or Mexican policies on their resolution.
If the tariffs cause a surge in inflation, Trump can always declare victory by claiming that these impossible-to-measure problems have been resolved thanks to him. He can then withdraw them in exchange for new trade concessions or – what is more likely – target tariffs and exemptions to favor companies generous to his party.
In short, these recent threats against Canada and Mexico are a harbinger of an administration that will be dominated by Donald Trump’s autocratic penchant and his propensity for arbitrary decisions to benefit those close to him.
