Donald Trump is carrying through his campaign pledge in threatening every country in the world with big taxes on the goods we import (tariffs) from them. However, he does keep changing the size of the taxes he wants to hit us with and who will be most affected. In the latest version imports from Mexico and Canada are taxed more heavily than imports from China, the opposite of the campaign promise. He also keeps changing the reasons for the taxes, but Trump doesn’t seem to care.
Many of his supporters boast about how Trump’s unpredictability is a brilliant negotiating strategy. The opposite is true. In planning long-term investment and trade relations, companies value stability. The last thing they want is to deal with a country where the rules change depending on what its leader last read on social media.
This is exactly the image Trump is projecting to the world with his bizarre demands to our trading partners. First and foremost, he is attacking Mexico and Canada, two countries with which he negotiated trade deals in his first term. He is complaining about how these countries are ripping us off because they have trade surpluses. He also is demanding they stop illegal immigrants from entering the United States and also prevent fentanyl from crossing their borders.
All of these complaints are close to absurd. On the surplus point, in what planet is a country ripping us off because they sell us more stuff than we buy from them? Does a supermarket rip us off because they sell us food, but don’t buy anything from us, unless we own a food processing plant?
If a country has a trade surplus it means that they are giving us goods and services in exchange for dollar bills. That allows us to have a higher standard of living than would otherwise be the case.
Trump’s complaint against Canada is especially bizarre because the entire trade deficit is due to the oil we import from Canada. Is Canada ripping us off because they sell us their oil?
The other two complaints are equally absurd. There is very little illegal immigration from Canada and Mexico has been very cooperative with both the first Trump administration and the Biden administration in trying to restrain illegal immigration.
As far as fentanyl, both countries have worked to limit the flows to the U.S. even though they have not been 100 percent successful. The United States also is not 100 percent successful in containing the shipment of fentanyl and other illegal substances within its own borders.
So, what exactly does Trump want? The governments of Mexico and Canada might be more competent than Trump’s people, but they are not that much more competent. They cannot plausibly end the flow of illegal drugs altogether.
In short, Trump is throwing out a trade deal that he negotiated himself, with border countries and close allies, over imaginary complaints. That is indeed makes Trump unpredictable, but also not the sort of person with whom you want to do business.
What foreign company would look to undertake large-scale investment, either for exports to the United States, or in the United States itself, knowing that Trump could decide to impose new rules based on any absurd thing in the world. That would not be a clever business strategy.
The logical response from foreign leaders trying to boost their own economies would be to do as little business as possible with the United States and to look to charge a premium on the transactions they do undertake. This is largely the story of Trump’s business career. Because he had a history of not paying contractors, many refused to work for him altogether, and the ones that did work for him wanted to be paid in advance.
In this context, it’s worth remembering that many of Trump’s businesses went bankrupt. His big success prior to entering politics was as a reality TV show star. He played a successful businessperson on TV, he was not one in reality.
Economists often say the government should not be run like a business, but in this case the comparison is useful. A businessman that shows himself to be an untrustworthy partner soon finds that no one wants to do business with him. If Donald Trump shows that the United States can’t be trusted to abide by its deals and conduct normal trading relations, our trading partners will look elsewhere.
That means we can expect the European Union and UK to look to form closer trading ties with China, the world’s other major superpower. We will likely see the same with Canada and Mexico. They may not especially like Xi’s autocratic government, but this is about business, not politics. A United States that is increasingly isolated in the world may be MAGA, but it is not good for the economy or our society.
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. Dean previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He has also worked as a consultant for the World Bank, the Joint Economic Committee of the U.S. Congress, and the OECD's Trade Union Advisory Council.
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