President Donald Trump has proposed to implement a blanket 25% tariff on all imported goods coming from Mexico and Canada in efforts to curb illegal immigration and drug trafficking. Additionally, he has promised to impose yet another 10% tariff on imported goods from China. This is in lieu of his “America First” trade policy that shares a more mercantilist approach to the economy. There is a lot to unpack here, and certainly a lot of moving parts that can become easily obscured by what is being portrayed in the media. Target headlines often look at the initial impact on prices of consumer goods and speculate what areas will be affected. However, we can’t just leave it at that; we must look at the big picture on how this will affect the U.S. long term, both domestically and internationally.

Let’s begin with a bit of background. The use of trade policies to coerce and influence states into submission is something that the United States does quite well and is a practice that many states use to exert influence over the world economy. In this case, this “hard power” approach allows President Trump to influence other actors to comply according to his agenda, as seen with the recent headlines with Colombia. However, these proposed tariffs come at a cost.

Firstly, tariffs are a domestic tax that can be levied on imported goods as they enter a country; this amount is based on the value of the good. Let’s say $80,000 worth of steel from Canada is being imported to the US; this import is subject to the 25% tariff and therefore would see a $20,000 charge. The common misconception here is that the foreign entity that is exporting the good is paying for the tariff; this is almost never the case. It is predominantly the US domestic firm that is importing the materials who are paying the tariffs to the US government. However, you can bet with a degree of certainty that the US firm will try and recoup these costs by marking up the price of the goods. Ultimately, it is the US consumer that will pay the prices of tariffs through higher-cost goods and face the economic burden of the tax. Now, the US firm has the option of absorbing the costs of the tariff without passing it on to the consumer, but this is not sustainable as well as unlikely in a capitalist economy. Another option would be if the foreign exporter eases the burden of the duty by reducing their export costs and tries to maintain good relationships with the US customer. But this will most likely lead to decreased export volume over time. It’s kind of like hot potato to who will be paying the tax, but instead of potatoes, it’s tax burdens.

Tariffs can be a very powerful economic tool, but there are certainly some drawbacks that need to be considered before implementation, as it can backfire on the wielder. As seen in 2018, when President Trump imposed the same 25% tariff on $50 billion worth of Chinese imports, later totaling upwards of $370 billion worth in goods. Understandably, China threw a retaliation tariff on American agricultural goods, which severely hurt U.S. farmers and the agricultural industry. Most of those tariffs have subsided, but a few still remain. An argument can be made that this escalated trade tensions between China and the U.S., further promoting economic rivalry and quite frankly didn’t do much for our current trade deficit. I am inclined to agree on that notion; however, China has been pushing the envelope on U.S. economic dominance in the world for some time. This did, however, strain our relationships with our neighboring countries, though. On the other hand, the steel and metal industry within the US greatly benefitted from the tariffs, as this limited imports of steel, aluminum, and other raw materials, which paved the way for a better market for US domestic firms.

As a result of the tariffs implemented in Trump’s first term, U.S. consumers saw an increase in prices of goods and electronics. Roughly 245,000 Americans lost their jobs but secured protections for certain domestic industries. Lastly, global trade relations were strained, yet we failed to achieve any long-lasting solutions. Protectionist trade policies, in the interest of putting “America first,” could be a practice best introduced strategically to solve trade disagreements rather than a blanketed approach on all imports to target a specific outcome (illegal immigration). President Trump told the American consumers that there will be initial growing pains to the adjustment of the tariffs. So far, Canada’s Prime Minister announced that Canada will impose 25% tariffs on $106.6 billion of U.S. goods (equivalent to C$155 billion) in response to the Trump Tariffs. We must ask ourselves if this is the right approach. Is a trade war looming or has it already begun?

Tariffs are a double-edged sword, and if used correctly, they could greatly influence other trade partners to comply with the demands of the wielder. However, we must understand that this comes at a cost somewhere down the line. Whether it’d be retaliation tariffs, strained trade relations, or fostering an imbalanced market. In the interest of Laissez-Faire, an economic liberalist approach, this practice should be used sparingly, if at all. We must discern for ourselves which economic system we want to pursue; from what I have noticed, there seems to be a slow shift from economic liberalism to a more mercantilist economy. Or better yet, should our policies ebb and flow with every presidential election? Where can we experience the most growth and do we want to cooperate with other States in this endeavor? There needs to be a consolidation of ideals in order to see real change; at the moment we are skewed and too polarized to agree on one ideal system.

Tell us what you think!

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