Photo: ALFREDO ESTRELLA/AFP via Getty Images
Well, after a week off from tariffs, it’s time to return to them, but this time I want to talk tactics rather than policy—how do you survive them? First, however, is a caveat. These comments are based on the assumption that Trump will actually do what he says he is going to do. As we have learned over the past two months, that is frequently not what happens. However, rather than waste space speculating over what he might do, I’m going to take his threats at face value and go from there. Looking at the question of survival, there are three categories: governments, companies, and people.
For governments, I expect the “Sheinbaum Strategy” to become popular. While not originally devised by Mexican President Claudia Sheinbaum—China employed a variation in Trump 1.0—she has used it effectively so far. It consists of three parts: assert national sovereignty politely, make modest concessions, and, most importantly, let Trump win. He thrives on the press conference—the opportunity to say, “I won; they folded.” It seems that the appearance of winning is more important than what he actually wins, the phase one agreement with China being a good example. President Sheinbaum and former Prime Minister Trudeau employed that strategy in February and March and bought themselves two months. It remains to be seen whether it will continue to work.
Trump’s “reciprocal” tariff strategy may be intended to encourage countries to offer to lower their tariffs in return for the United States not raising its tariffs. That could lead to the opportunity for many countries to try out the Sheinbaum Strategy as part of a giant game of “Let’s Make a Deal.” Some governments, in contrast, will retaliate. Colombia and Ontario Premier Doug Ford tried that and failed. I expect the European Union to take that approach. It is much larger than Colombia or Ontario and may have better luck. China has also had some success with the “standing up to the bully” strategy.
For companies, the smart ones have been stockpiling for months. That will delay the damage the tariffs will cause, but eventually, inventories will be drawn down, and costs will rise. Then it will become a case of adroit supply chain management while at the same time begging for exemptions. Trump has said there will be none, but you should not believe that. Companies should marshal their arguments, mobilize their elected officials, and hope they hit the jackpot. They will be aided by the inevitable appearance in the media of heart-rending stories featuring small businesses, usually run by media-savvy old ladies, who will say Trump is forcing them into bankruptcy because they can no longer afford the imported components that are key to their products’ success. When those stories multiply into double digits and go viral, the administration will find itself in an awkward position and return to the exemption process as a political safety valve.
Simultaneously, companies will be frantically identifying inputs from high-tariff countries in their supply chains and searching for low-tariff alternatives. That will be hard for the little old ladies, but larger companies have supply chain managers whose job is to navigate around obstacles and cut costs. Large companies also sometimes have sufficient market power to force their suppliers to eat all or part of the tariffs. Even so, their costs will increase. Simply changing supply chains costs money, and the tariffs will over time create a new equilibrium with higher built-in costs. Supply chain managers may be able to find lower tariff options, but they are unlikely to find many viable zero tariff options, so their costs will inevitably go up, as will their prices.
A side effect of supply chain adjustment is circumvention and customs fraud. If the “reciprocal” tariffs vary from country to country and avoid countries that don’t charge us tariffs, which would mean our free trade agreement partners, that creates opportunities not only for legitimately moving production or components’ purchases to low-tariff countries but also to engage in fraud by shipping products to third countries and relabeling them as having originated there. If imports from Central America, Oman, or Bahrain suddenly boom, you will know the reason why. For the record, I am not recommending that as a strategy.
People, sadly, are at the bottom of the economic food chain and, individually, are not going to alter government policy. They can, however, alter their own behavior by consuming less and not buying things they can no longer afford. That would be out of character for many Americans, but if the tariffs are large enough, that might happen, particularly if the tariffs end up being cumulative. In a worst-case example, a Mexican car will have a tariff of 25 percent because it is from Mexico, plus 25 percent because it is a car, plus up to 25 percent because it contains a lot of steel and aluminum, plus whatever “reciprocal” amount the administration decides to assess. There are varying estimates of how much auto prices will increase, but the range appears to be from $3,000 to $12,000. Of course, people can also protest. That will not likely change the president’s mind, but it might help some members of Congress find their spines and take steps to restore Congress’ constitutional role in setting trade policy.
William A. Reinsch is senior adviser and Scholl Chair emeritus with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
