On the menu today: In normal times, “controversial trade issues” would refer to the fact that Luka Doncic is now a Los Angeles Laker. Instead, President Trump’s new 25 percent tariff on Canada and Mexico, and 10 percent tariff on China, are slated to go into effect Tuesday, and those countries are pulling U.S. goods off the store shelves in retaliation. A trade war has begun, and you’re going to see the effect in prices at the store quite soon. Elsewhere, we get a form of proof of life from our most recent former president.
The Trade War, Coming Soon to a Store Near You
Welcome to the first Monday of the North American Trade War.
Up until now, imports from Canada and Mexico largely entered the U.S. market either duty free or at average ad valorum (in proportion to the estimated value of the goods or transaction concerned) tariff rates less than 1 percent. This was arranged under the U.S.-Mexico-Canada Trade Agreement, which Donald Trump signed into law on January 29, 2020, and that he touted as “the largest, most significant, modern, and balanced trade agreement in history. All of our countries will benefit greatly.” One of the advantages of USMCA was its clarity and “policy certainty.” In 301 pages, the USMCA laid out the U.S. tariffs on thousands of different kinds of goods — all set at zero.
With the new tariffs, Donald Trump has violated the treaty that he signed into law, a treaty that his White House called a “tremendous victory for American workers, farmers, manufacturers, and businesses alike.”
The Wall Street Journal warns that you should expect to pay more soon for smartphones (made in China), sledgehammers (made in China), avocados (Mexico), tequila (Mexico), maple syrup (Canada), cherry tomatoes (Canada and Mexico), and, if you’ve got a child who loves Tonka trucks, maybe grab one at the store today:
Over a million Tonka trucks are sold in the U.S. each year, and all of them are made in China. A 10 percent import tariff on Chinese goods will probably raise the retail price of the trucks from about $29.99 today to between $34.99 and $39.99, said Jay Foreman, chief executive of Basic Fun, the toy’s manufacturer. More than 80 percent of toys sold in the U.S. are manufactured in China, according to the Toy Association, an industry group.
The American Petroleum Institute also says you should expect gas prices to rise: “The U.S. is by far the world’s largest oil producer, but U.S. refineries — primarily in the Midwest — rely on Canadian crude to produce the gasoline, diesel and jet fuel that’s critical for transportation, agriculture and American consumers. The U.S. is the largest market for Canadian crude oil exports, and Mexico is the number one destination for U.S. refined product exports. U.S. oil and natural gas exports to China totaled more than $14.4 billion in 2023 and are critical to reducing our trade deficit.”
When they refer to the Midwest, they mean places like Wisconsin:
The 25 percent tariffs could increase the price of Canadian crude oil from about $63 per barrel to $80, according to [Patrick De Haan, head of petroleum analysis at GasBuddy]. The refineries that serve Wisconsin rely primarily on Canadian crude oil, so within a few days of the tariffs kicking in, prices at the pump could rise between 20 and 50 cents a gallon.”
Back in 2018, Peter Navarro, then-President Trump’s National Trade Council director, confidently assured Fox Business Network’s Maria Bartiromo that no country would retaliate against American tariffs on their goods: “I don’t believe any country in the world is going to retaliate, for the simple reason that we are the most lucrative and biggest market in the world. They know they’re cheating us and all we’re doing is standing up for ourselves.”
I know it’s going to shock you, but it turns out that other countries’ leaders don’t believe that they’re cheating us and that we’re just standing up for ourselves. They think the new administration just picked a needless fight, is breaking its promises, and set everyone up for economic disruption and higher prices on goods and energy. And their retaliation is coming swift and hard.
Saturday, Canadian Prime Minister Justin Trudeau announced plans to impose 25 percent tariffs against $155 billion worth of American goods. “Like the American tariffs, our response will also be far reaching and include everyday items such as American beer, wine and bourbon, fruits and fruit juices, including orange juice, along with vegetables, perfume, clothing and shoes.”
Doug Ford, the premier (roughly the equivalent of a governor) of Ontario, Canada, Sunday morning:
Every year, LCBO [Liquor Control Board of Canada] sells nearly $1 billion worth of American wine, beer, spirits and seltzers. Not anymore. Starting Tuesday, we’re removing American products from LCBO shelves. As the only wholesaler of alcohol in the province, LCBO will also remove American products from its catalogue so other Ontario-based restaurants and retailers can’t order or restock U.S. products.
British Columbia Premier David Eby “directed the B.C. Liquor Distribution Branch to immediately stop purchasing American liquor from Republican-led ‘red states’ and remove the top-selling brands from public liquor store shelves.”
This weekend, Mexican President Claudia Sheinbaum said her government will impose retaliatory tariffs, with more details about the move expected to arrive later today. The Atlantic Council’s Jason Marczak writes, “If Mexico uses a similar playbook as to when Trump threatened tariffs in 2019, retaliatory tariffs will follow a red-state strategy. This could include pork from Iowa, dairy from Wisconsin, and industrial goods, including vehicles and electronics, particularly from Michigan and Ohio — all states that voted for Trump in 2024.”
The Chinese Foreign Ministry issued a statement declaring its intent to file a complaint with the World Trade Organization and take unspecified “corresponding countermeasures to firmly safeguard its own rights and interests.” Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund, wrote a few days ago, “Faced with 10 percent tariffs, Beijing has a trick up its sleeve: currency devaluation. Watch to see how the yuan moves this week. It’s likely that most of this increase can be absorbed through exchange rates — and that’s one reason why Beijing’s rhetoric will be sharp, but its economic retaliation will potentially be more muted.”
Navarro is back in the Trump administration again, now with the title of Trump’s “senior trade and manufacturing advisor” who’s “helping craft the president’s tariff options on this front.”
In an interview with CNBC on Friday, Navarro assured the audience, “The markets should be comforted by all this, because taken as a whole, we’re going to have lower inflation and faster growth, and we’re going to have a more secure and prosperous America, which is good for the world.”
This just handed to me: The markets are not comforted by all this. As of this writing, Dow futures are down 632 points, and the S&P and Nasdaq are looking worse, percentage-wise. Overseas markets are down, too. You’re probably not going to want to check your 401(k) today.
As you see in those interviews with Navarro, when Trump supporters are challenged about the consequences of these tariffs, they quickly turn to issues like fentanyl and illegal immigration. No doubt those are important issues. What tariff advocates never quite get around to addressing is how starting a trade war with our largest trading partners is going to improve the situation with those important issues. There’s always this nebulous contention that the Canadian and Mexican governments could solve those problems, and choose not to do so. (I’m a little more sympathetic to the idea of imposing tariffs on Chinese goods, as we should be decoupling economically from our preeminent geopolitical foe — although there’s competition for that title).
If you say, “I don’t think these tariffs are going to get the result you want,” you instantly get accused of not caring about fentanyl deaths or illegal immigration, which is of course abject nonsense and standard-issue name-calling. But if you don’t believe me, take it from this assessment of a prominent economic mind, one year ago:
We find it unlikely that across-the-board tariffs, as currently reported by the media, would be enacted at the same time as [Trump] moves to fix the immigration crisis. The tariff gun will always be loaded and on the table but rarely discharged. Of course, strategic and national security issues around China will remain. Another differentiated view that we have is that Trump will pursue a weak dollar policy rather than implementing tariffs. . . . Tariffs are inflationary and would strengthen the dollar — hardly a good starting point for a US industrial renaissance. [Emphasis added.]
That was written by . . . Scott Bessent, who is currently Trump’s secretary of the Treasury.
Keep in mind, Trump argued Sunday evening that if you think the tariffs are a bad idea, you’re controlled by China:
Anybody that’s against Tariffs, including the Fake News Wall Street Journal, and Hedge Funds, is only against them because these people or entities are controlled by China, or other foreign or domestic companies. Anybody that loves and believes in the United States of America is in favor of Tariffs. They should have never ended, in favor of the Income Tax System, in 1913. The response to Tariffs has been FANTASTIC!
And does anyone have a good explanation about why the tariff on one of our closest allies, Canada — the guys who stormed Juno Beach on D-Day, founding member of NATO, the only other country we allow to compete for the World Series of America’s Pastime — is two-and-a-half times higher than the one on China, which has, in the words of our new Secretary of State Marco Rubio, “lied, cheated, hacked, and stolen their way to global superpower status, at our expense”?
Why are we so much tougher on our longtime friends than our most stalwart enemies?
ADDENDUM: Defying my skepticism, former president Joe Biden, technically, did “reemerge” at the Democratic National Committee meeting this weekend, in the form of a two-minute videotaped message. In a revealing detail about how much Biden’s party has moved past his presidency, that videotaped message wasn’t mentioned in most of the coverage of the DNC electing Ken Martin as its new chairman.
For more on the DNC’s new chairman and election of David Hogg as a vice-chairman, click here.