Photo: David Kawai/Bloomberg via Getty Images
Well, the rollercoaster ride continues. It remains to be seen how soon nausea sets in. There are so many things happening that it is hard to know where to begin. Flooding the zone has become the new slogan (and I don’t mean the Panama Canal Zone—yet). This week’s topic will concern last week’s events, namely the tariffs on China and the almost tariffs on Canada and Mexico. My Trade Guys colleague, Scott Miller, was gifted a T-shirt that reads, “I survived the great 2025 trade war. Feb. 3, 2025–Feb. 3, 2025”.
The war that wasn’t, or wasn’t yet, produced diametrically opposed headlines. Some said Trump had folded because he postponed the tariffs. Others said Canada and Mexico had surrendered and made concessions. In truth, both were right, and the episode provides a lesson to other countries trying to figure out what to do when the careening clown car heads their way. The main lesson is that what Trump really wants in the short term is a victory he can brag about. That’s what he got, and it showed that Prime Minister Justin Trudeau and President Claudia Sheinbaum learned how to play him—politely insist on national sovereignty (no poking in the eye), make minor concessions (best if they are the same ones made earlier), and let him declare victory (no eye-rolling or chest-thumping on their part).
China, in contrast, took a different route, declining to make preemptive concessions, taking the tariffs, which are lower than the others, imposing equivalent retaliation that was milder than expected, and waiting for the call that will lead to negotiations. When that comes, I expect a replay of 2019–2020—a long negotiation ending in a modest agreement that Trump can brag about, but which won’t change much. China played him then, and they’ll play him again this time. The Chinese have been sending shots across the bow for months (export controls, investigations of U.S. companies), which Trump’s advisors have no doubt noticed, even if he hasn’t. Their message is, proceed with caution—we can make life difficult for you.
February 3, however, only provided a reprieve, not a solution, which raises the question of what Trump’s actual goals are. He is a believer in distributive bargaining, which is a zero-sum approach. The pie remains the same size; the negotiations are over how big a slice the United States should get. That means there must always be a winner (him) and a loser (the other guy). That contrasts sharply with integrative bargaining, which focuses on growing the pie and creating win-win outcomes. He has listed so many goals that it is hard to know which applies in a given case—non-trade grievances like fentanyl and migrants, reshoring manufacturing, unfair trade practices, raising revenue, rebalancing an inequitable trading system, and on and on.
Most of those are unattainable or come with significant costs. The Committee for a Responsible Federal Budget estimates that the China, Canada, and Mexico tariffs, if imposed, would bring in $1.4 trillion over 10 years, while the cost of extending Trump’s tax cuts is estimated at $4.6 trillion over the same period. As numerous economists have pointed out, the math doesn’t add up. Reshoring manufacturing is a long-term project. Tariffs go into effect more or less immediately, but a decision to move or build a plant is not made that quickly, and even if it were, it would be years before the plant was operational. And, thanks to Trump’s deportation policy, there won’t be enough workers to fill the new jobs being created. With Canada, Mexico, and China, I predict either lengthy negotiations enabled by rolling postponements of the tariffs or the remaining tariffs being imposed when Trump loses patience. He and his minions have convinced themselves that little harm will come to Americans, so why not go full speed ahead? (He has begun to acknowledge there might be some short-term damage, but he clearly sees it as a small price to pay for rebalancing the system.)
The reality is that Trump’s actions make reshoring less likely. Companies thinking about new investments focus on three big issues (and a host of smaller ones). Is the target a rule-of-law country or does the government make arbitrary decisions? Is there policy stability? Is there a mechanism for resolving commercial disputes that is transparent, efficient, and objective? Trump is in the process of trashing all three, and we will see the result of that in wary investors looking elsewhere. Nearshoring is a better bet than reshoring.
The other long-term cost is that he is squandering our soft power by alienating friends and allies we will need in the future. Ronald Reagan said it best: “Our peaceful trading partners are not our enemies, they are our allies. We should beware of the demagogues who are ready to declare a trade war against our friends—weakening our economy, our national security, and the entire free world—all while cynically waving the American flag.” Ironically, he is taking the same economic coercion approach that China employs. Beyond trade wars, his disruption of humanitarian aid flows will make enemies all over the world, not to mention the people who will die because of it.
So, what to do? The Democrats are heading for the courts rather than the barricades, and that is their smartest move to head off the worst of Trump’s excesses. That probably won’t work on trade policy—though he’ll doubtless be sued over any tariffs. There may well be no choice except to wait for him and the economy to implode. The tragedy will be the damage the American people will have to suffer in the interim.
William Reinsch is senior adviser for the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
