Has Trump already lost the trade war?
Vader-like ultimatums only work from a position of absolute power over adversaries.
Donald Trump has yet to take office, but his trade war is shaping up. And he may have already lost.
Trump has threatened 25 percent tariffs on imports from Canada and Mexico and even higher duties on Chinese goods. Contrary to the classic “Seinfeld” bit, under Trump’s onerous trade tax regime, duties are not “doody.”
Trump has also insulted the foreign leaders he needs to deal with. Earlier this week, the president-elect called Canadian Prime Minister Justin Trudeau “Governor Justin Trudeau of the Great State of Canada” in a Truth Social post after threatening to annex our neighbor to the north. No one ever said that Trump was diplomatic and for good reason.
Trump’s actions and antics are sure to be applauded by his base, but The Former and Future Guy apparently fails to realize just how vulnerable the US is in a trade war. For example, even though the US currently produces more oil than any country in history, imports have also increased. This year oil imports from Canada also increased to a record 4.3 million barrels per day. Sixty percent of US oil imports come from Canada. Trump and MAGA may not have considered that fact in their quest for lower prices through trade wars.
Beyond oil, Canada, Mexico, and China are the US’s three largest trading partners for both imports and exports. Placing tariffs on imported goods will invite retaliation that will kill American export markets.
Two of these three trading partners signed a new trade treaty, the USMCA, with the US only four years ago under President [wait for it] Donald Trump. If Canada and Mexico are taking advantage of the US on trade, then Donald Trump, who presided over renegotiating and ratifying NAFTA, bears a large part of the blame.
It is unlikely that two neighboring countries who overhauled their trade deals with us just four years ago would be willing to reconsider renegotiating again so soon. Trump’s insults may quash any desire to renegotiate in addition to the fact that Mexico and Canada likely come to the realization that the US - Trump - cannot be trusted to honor any new deals,
If Trump was versed in the classics, he might channel Darth Vader’s line from “The Empire Strikes Back,” telling America’s trading partners, “I am altering the deal. Pray I don’t alter it further.”
Another aspect that Trump fails to recognize is that if he erects an economic wall around the US economy, our trading partners will have far more options for markets than we will. Mexican consumer goods and Canadian oil will have more buyers from countries without a 25 percent trade surtax than American exports which will have to run a gauntlet of retaliatory tariffs. A Europe trying to break its Russian oil habit would be happy to purchase oil from friendly Canada.
Or maybe Trump does realize that. Maybe his ultimate goal is to strangle America’s economic links to the world.
Whatever his ultimate goal, Vader-like ultimatums only work from a position of absolute power over adversaries. Donald Trump is not in such a position.
Becoming an insular, isolated nation will come with economic costs. As we saw in Trump’s first presidency, trade wars are not good for the economy. As I’ve pointed out before, American manufacturing and agriculture were hit hard by Trump’s first trade war.
As an already-lame duck, Trump has only four years to win the trade war, but China, his biggest target, is a repressive regime where popular discontent from economic pain can be suppressed. Even so, the Chinese government said this week that it would be willing to go deeper into debt to weather the tariff war, something that Trump would be hard pressed to do with a slim Republican majority in Congress that includes a faction of deficit hawks.
Beyond economic pain, there are national security issues. China dominates world markets for rare earth metals. This week, China announced a ban on the sale of several metals to the United States. Gallium and germanium are used in the manufacture of semiconductors, which have both civil and military applications, and antimony is used in military explosives.
American dependence on hostile countries for components of military hardware is a longstanding problem that has not been adequately addressed by either party, but picking a fight with a country that can choke off our ability to build military hardware is unwise in the extreme. The problem needs to be addressed and it would be ideal to do so before starting a trade war - or worse, a shooting war - with the Chinese.
Unlike the first time around, China is expecting Trump’s economic aggression this time and has had years to prepare. The new ban on sales to the US indicates that they mean to take a more aggressive posture in the coming trade war.
That Trump is likely to lose the coming trade war is apparent even before it starts. When prices rise and the economy slows due to tariffs from both sides (to say nothing of Trump’s other radical actions), voters will veer back toward the Democrats in the 2026 midterms. On top of that, China is likely to take a harder line that could ultimately threaten American military readiness. Weakening the US both economically and militarily could play into China’s long-term goal of regaining Taiwan. Trump’s erratic economic behavior might also aid America’s rivals in replacing the dollar with a different world reserve currency, an action that would be disastrous for the debt-ridden American economy.
If you think a trade war couldn’t lead to a shooting war, it has happened more than once in history. A very well-known example is World War II. War between the US and Imperial Japan was caused at least in part by Japanese aggression in the Pacific in its quest for raw materials and markets and the American embargo in response. In many respects, US-China relations today parallel the old pre-war days.
One of the things you come here for is the pop culture references (as far as I know) so I’ll close with another one. When it comes to the brewing trade war, I’m reminded of the moral of the 1983 movie, “War Games.”
“The only winning move is not to play.”
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To add some color here: China's ban on gallium and germanium was in response to a Biden administration move further restricting key tech exports, not necessarily a precursor to Trump. They also did this in 2010, according to the NYT piece David cited. Also, Trump's North America tariff threats are linked to to border security and drug enforcement, especially fentanyl. These ar popular topics in the U.S. and it would bode Canada and Mexico well to announce some kind of effort to deal with it, which is what I believe will happen--trade will go on. Musk is whispering in Trump's ear all the time and I think at least for the first 100 days, things might not be such a disaster, but I've been wrong before on that (and there's lots of room for disaster). As for trade wars, yes they are terrible, but when trade is not the point of one, it might not be as it seems. Biden's tech bans to China are not trade, they are national security, but China sees all trade as national security.
Mr. Trump probably failed to consider that the rest of the world is similar to democrats and Trump haters - no sense of humor.