The Decibel - How Trump is waging war through tariffs

Episode Date: February 14, 2025

Less than a month into his second term, U.S. President Donald Trump has already threatened to impose tariffs on half a dozen allies and adversaries. This week, he announced incoming universal tariffs on steel and aluminum, along with reciprocal tariffs on a range of foreign imports at ‘different levels’.But when and why did Trump decide that tariffs would be the centrepiece of his plan in redefining America’s role in the global trading system?Mark Rendell is the Globe’s Economics Reporter. He’ll explain how Trump is using tariffs, its role in achieving his administration’s vision for U.S. trade, and whether all of this... could actually backfire.Enter this Decibel survey: https://thedecibelsurvey.ca/ and share your thoughts for a chance to win $100 grocery gift cardsQuestions? Comments? Ideas? Email us at [e-mail]

Since Donald Trump came into office less than a month ago, he's made a barrage of tariff announcements. They've caused global economic uncertainty, as countries and businesses have tried to anticipate how to respond. Many of these levies have yet to come into effect. And on Thursday, Trump announced a whole new set of reciprocal tariffs. According to him, these are designed to level the economic playing field between countries. But where does Trump's thinking on tariffs come from?

And will they actually achieve what he wants? Mark Rendell is the Globe's economics reporter. He'll explain how the Trump administration is using tariffs, what they're trying to accomplish with them, and how it all fits into Trump's vision for the United States. I'm Menaka Raman-Wilms, and this is The Decibel from the Globe and Mail. Mark, thanks so much for joining us. Hey, thanks for having me. So just broadly, Mark, how would you describe Trump and his team's thinking on trade?

So Donald Trump is an old school mercantilist. He thinks of trade as a zero sum game. It's a world where there's winners and there's losers. And he thinks if you're running a trade deficit, so you're buying more goods from the rest of the world and services than you're selling, then you're a loser, other countries are taking advantage of you. And he essentially wants to get to a world in which trade is balanced, it's reciprocal, or a situation in which the US has a trade surplus.

Because again, winners and losers, he wants to be a winner. The US has been running a trade deficit with the rest of the world since the 1970s for a whole range of reasons, but he sees that as a very negative thing. There's also an economic nationalist strain in his thinking. And so this is something that's actually bipartisan across both the Republican and the Democrat parties these days. They have this broad vision that the kind of globalization that we've seen, especially since the 80s, the 90s, the 2000s, the liberalization of trade, the increase in capital flows across

borders, they see this as having had negative impacts on the United States, specifically on US manufacturing capacity, US manufacturing jobs. This is an image that by signing NAFTA, by creating the World Trade Organization, it facilitated the flood of jobs away from the American Midwest into China and into Mexico and other low cost destinations. And so there's this economic nationalist strain that wants to try to use a bunch of tools, whether it's trade barriers like tariffs or subsidies

to try to bring that manufacturing back to the United States. So that's one of the goals that they're trying to achieve with these measures. That's exactly it. And there's a second aspect of the economic nationalist argument around this, which is they see themselves in competition

with China. They see themselves as fighting a battle for supremacy in cutting edge technologies, whether it's semiconductor chips, electric vehicles, all that kind of stuff. Part of what's trying to be accomplished here, and this was true of both the Biden administration and the Trump administration, is they're trying to shift supply chains away from China. So trying to break China's hold on critical minerals, for example, on a number of advanced electronics and trying to cut down the lead China has on electric vehicles, that kind of stuff.

So there's those two sides to the economic nationalist argument. That's bipartisan, but that old school mercantilist thinking, that's a very Donald Trump way of doing things. AMT – Interesting. OK. So this is kind of giving us an overview of how they're approaching this situation then. Let's actually look at how they're using tariffs or how they want to use tariffs here, Mark.

Of course, tariffs are essentially taxes on goods coming into a country paid by whoever's bringing in those goods. How exactly do tariffs, I guess, fit into this broad idea of how Trump thinks about trade? Well, Donald Trump is, he's called himself a tariff man. He says, I'm a tariff man. He's called tariffs the most beautiful word in the dictionary. He loves tariffs.

And this goes back a long time. You can go back to the 1980s and find Donald Trump kind of talking in protectionist terms. So he's a true believer in the use of tariffs to achieve a whole range of goals. And this is something that's quite unique about Donald Trump. For him, tariffs are kind of a multi-tool. They allow you to do a whole bunch of different things. He thinks by throwing up big tariff barriers on the border,

he can shrink the US trade deficit with the rest of the world. He thinks he can reshore manufacturing jobs. He thinks he can get foreign companies, foreign auto companies to come set up shop in the United States. He also wants to fund tax cuts because he has dreams of significant tax cuts and he thinks he can use tariffs and revenue that comes from tariffs, which as you said, it's a kind of tax. He believes he can use that to help fund his tax cuts. So tariffs do everything in Donald Trump's mind. He absolutely loves them.

And they are the key kind of fundamental pillar of the Trump economic vision and the attempt to essentially reorder world economic trade and change the patterns of trading globalization that we've seen for decades. Okay. And so all those points that you just mentioned there, Marc, those all kind of seem to center around the economy. So this is part of his economic vision, as you said. But a lot of the trade arguments he's making also seem to maybe blend into a little bit of diplomacy, if I can say that. Can we talk about how he's using them in that way as well? That's, I mean, you're absolutely

right. This is a difference from the first Trump presidency to the second Trump presidency, is he is alongside using tariffs to try to achieve a range of economic goals. He's also using tariffs very explicitly as a tool of statecraft or tool of diplomacy. You see this very explicitly in the threats against Canada and Mexico. He said, I'm going to put 25% tariffs on all Canadian and Mexican goods unless you do more to cut off fentanyl trafficking, you do more to limit illegal migration across the border.

You saw it with Colombia when Colombia didn't want to accept deportation via military plane of certain migrants. Trump threatened 25% tariffs against Colombia. So he's basically using tariffs as a threat to cajole countries into submitting to a whole range of non-economic things. So you could also see, I mean, we haven't seen it yet, but he's hinted at potentially threatening tariffs if Canada doesn't spend more on its military.

Essentially, he's using access to the US market as a tool by which to achieve concessions from other countries. And I want to talk about the recent announcement that Trump said he was putting matching tariffs on trading partners. So the general idea would be to match tariffs that countries have on US goods that they're bringing in. We don't know the exact details yet, Mark. It's still a little bit vague at this point.

But what I guess what category would that fall under? Is this diplomacy or is that economics? So this announcement that happened on Thursday afternoon, it's a big one, it's an important one. It seems to be part of Trump's kind of broader economic vision of trying to achieve reciprocal trade, to try to shrink America's trade deficit, trying to match imports and exports across a range of countries. So what he has said is he and his administration are going to go country by country, they're going to look at what trade barriers get put on American goods, and they're going to match

that. And interestingly, it wasn't just what tariff levels, it's also what non-tariff barriers are in place. So that could be anything from certain types of value added taxes, it could be things like do you subsidize aspects of value added taxes. It could be things like, do you subsidize aspects of your auto industry? And this is under the term reciprocal trade. So we're going to see how this plays out in the coming months.

It's kind of unclear what level tariffs you're going to see country by country. It's also unclear how much this is a negotiating ploy, right? Like last week, for example, when he met with the prime Minister of Japan in Washington, he complained about the trade deficit that the U.S. has with Japan. But he also said, you know, look, if you buy a bunch of natural gas from Alaska, maybe we can make a deal.

So Trump sees himself as this consummate dealmaker. So as much as we have this sense that there will be country by country tariffs, it could be that he is trying to gain leverage to negotiate certain market access on a country by country basis. I wonder, is there any way that he does have a point here? Does the US tariff countries less than other countries would tariff American goods coming in? Is there an imbalance of any kind? The US definitely has a lower average rate of tariff than a lot of other countries it deals with. So for example, you know, he's meeting on Thursday afternoon with Indian

Prime Minister Narendra Modi. India has considerably higher tariffs against US goods and vice versa. You see that in a number of countries developing economies tend to have higher tariff barriers. In most advanced economies, whether it's Europe, America, Canada, they've been part of a broad international push really since the Second World War and after the Great Depression, which saw a spiral of tariff, a kind of trade war that helped fuel the depression. And after the Second World War, there was this drive, really led by the United States to try to lower tariff barriers. And decade after decade, trade was liberalized, capital movement between countries was liberalized, became easier to move money around across

borders. And this process, which people call globalization, really kind of went into overdrive in the 80s and the 90s and the early 2000s. And the driving thought behind that, which was essentially the consensus, I mean, they even called it the Washington Consensus up until Donald Trump's first election, was that lower trade barriers, lower tariff barriers allows for more trade, allows for countries to specialize in what they're good at producing, trade things they aren't so good at producing. It's going to increase efficiency. It's going to make everybody better off in the process. This was again the kind of consensus for you really

up until 2016. And Donald Trump marked with his first election a pretty severe turn in that kind of thinking. And that has continued in this more economic nationalist, more protectionist vein essentially since then. The tariffs we've talked about so far are still kind of theoretical. They have not gone into effect, but Trump has actually put new 10% tariffs on China. These tariffs on China began February 1st.

Why has he taken this action specifically against China? So Trump started a trade war with China back in his first administration. The US sees China as its major economic and geopolitical competitor. So part of what they're trying to do with these tariffs is tied to that kind of national security aspect. It's the idea that they want to reduce American reliance on a range of Chinese goods. They want to reduce Chinese steel coming into the US market and undercutting US steel production. They want to slowly reduce the reliance on Chinese supply chains. There's also this sense that the trade deficit with China, which really emerged as a, you

know, became quite massive in the early 2000s in particular after China entered the World Trade Organization. There's this vision that that was the principle, you know, vacuum cleaner sucking jobs out of America over to China. And there is some truth to that. There's reasons why America has lost manufacturing jobs that has nothing to do with trade and everything to do with automation and technological development. But there is still this kind of residual sense that the China shock of the early 2000s has

been a major driver of US deindustrialization. So the Trump trade war that started in the first administration with China and continued into the second administration has both the economic and that kind of national security component to it. We'll be back in a moment. When we look at this broadly, Mark, kind of zoom out again, I guess I wonder how effective this is going to be in the long term for Trump. Like with bringing manufacturing back to the United States, as you said, was kind of a

stated goal of all of these actions on trade. Could tariffing countries eventually lead to that? So the evidence isn't very good on that front. You can look at the 2018 steel and aluminum tariffs. You can look at the tariffs on about aluminum tariffs. You can look at the tariffs on about 350 billion worth of Chinese goods during the first Trump administration. And it did very little to reshore jobs. It did very little to produce manufacturing jobs. Now, it certainly helped certain industries, right? So if you throw big tariffs on steel and aluminum, you're going to

raise the price of steel and aluminum in the United States. That's going to help US domestic manufacturers compete. Your course bringing this up, as you said, he did this in 2018, put tariffs on steel and aluminum, and he threatened to do that again come March. So this is what we're watching. It's exactly it.

So you did see an increase in output in steel industries. But you also saw a contraction in a range of steel using industries, right? So you also saw big retaliation, specifically on the Chinese side, major retaliation against US agriculture, so tariffs on US soybeans, for example. And so while you may have supported steel workers in Ohio or elsewhere in the Midwest. You're also hammering farmers on the American prairies. The US ended up having to spend tens of billions of dollars subsidizing farmers because of

the Chinese retaliation to their tariffs. The empirical evidence isn't particularly good that it's going to be tariffs. So the evidence, the empirical evidence isn't particularly good that it's going to be successful. There's lots of also kind of economic reasons why it may not be successful. For one, when you put tariffs on other countries, it tends to lead to an appreciation of your currency. So your dollar is going to strengthen against other dollars. You know, you've seen this very clearly in what's happened with the threats against Canada. The Canadian dollar has depreciated. The American dollar has appreciated. Now, what that does is it means if you are an American exporter and you're trying to sell to the rest of the world, if your dollar

has appreciated, your product is going to be less competitive. There's also the fact that if you put tariffs on your border, you're going to drive up the cost of all the inputs. Because remember Canada, like a lot of what Canada ships to the US is not finished goods, it's auto parts, it's other inputs that go into machinery that's produced in the US. Lots of steel and aluminum as we mentioned. If you drive up the cost of that by putting tariffs we mentioned. If you drive up the cost of that by putting tariffs on it, you're driving up the cost of inputs into US manufactured goods, which makes them less competitive in a global market as well. All you're really doing, you're not really shrinking the size of the trade deficit, you're just shrinking the size of overall trade, and you're leaving everybody worse off. Unless you're in, you know, one of those few protected

industries in which you may see some job growth, but it's going to come at the cost of other industries in the country, and it's going to come at the cost of higher prices for consumers. Yeah, it sounds like you're basically kind of shifting around who would benefit, right? So the steel mill might benefit, but maybe the company making cars down the road is actually going to not benefit from that then. That's exactly it. It is a process of redistributing. So you're moving pieces around the economy.

You're saying we like steel workers more than we like X, Y, and Z other workers. So we're going to throw them a bone at the expense of other aspects of the economy. Let's talk about trade deficits though too, because when it comes to lowering the trade deficits that the states has with other countries, as we talked about earlier, will tariffs actually address that issue? So most economists think that trade deficits aren't primarily caused by trade policies. The things that drive a trade deficit is various imbalances in a country's economy or various kind of macroeconomic policies. So the kind of textbook way to understand

a trade deficit is an imbalance between savings and investment in a country. If a country saves a lot relative to how much it invests and consumes, it's going to be running a trade surplus. You see this in China's the best example. They have a very export-oriented economy. Savings rates are very high. Consumption rates are relatively low. All those cars they're producing, they've got to go somewhere. The flip side, look at America.

America has a very low savings rate compared to how much it consumes. It's going to be pulling in goods from around the world and capital from around the world. There's also the fact that the biggest driver of the US trade deficit, a lot of economists will tell you, is the massive fiscal deficit. So the US government runs an enormous fiscal deficit to the tune of six, seven percent, which is enormous by international comparison.

And that is a kind of dis-saving in an economy, and that's gonna be part of the US trade deficit. And there's a final very important thing to understand as well, is trade deficits are closely tied to exchange rates. So how much currencies are worth relative to other currencies. And the US dollar is overvalued on a purely trade basis because the US dollar plays a very unique role in the international financial system. It's what's called the reserve currency. So that means

countries all around the world, investors all around the world want to own US dollars. That creates an essentially unending demand for US dollar assets, which pushes up the US exchange rate. Okay, so there's some complications here, but basically it sounds like just putting in place those tariffs that won't necessarily get rid of the trade deficit that the states has with other countries. It won't do that. Yeah, it will certainly, you know, it can shift trade deficits around. So, you know, if you slap tariffs on one country, imports from that country may decrease, but they're probably going to increase from another country instead.

So you saw that in the China tariffs in 2018-2019. Imports from China did decline to the US, but at the exact same time, almost one for one, imports increased from Mexico, increased from Vietnam, and increased from other low-cost import destinations. So what was happening there was you were essentially just shuffling around pieces on the board. It's also very difficult if you put up tariffs to shrink the trade deficit because you're shrinking the amount of imports coming into your country, but you're also shrinking the amount of exports because your own exports are becoming less competitive.

Inputs into all of the stuff you're producing, all the metals that it's going into your cars, all those widgets that have become more expensive from Canada, you know, that's all means Ford and GM and all that stuff that gets produced in Detroit is less competitive internationally. So by driving up the cost of imports, you're also driving up the cost of exports. So Mark, I think we should mention of course that Canada and Mexico already have a trade deal with the United States. This is, of course, KUSMA, the new NAFTA, essentially, which is renegotiated by Trump

during his first term. I guess I wonder if all of these talk about tariffs, could this be a preamble to a renegotiation of the KUSMA deal and other negotiations to come? Totally. I mean, one way to see all of the tariff threats against Canada is essentially softening us up for the renegotiation of KUSMA or the USMCA as the Americans call it. One way to see all of these threats is basically trying to achieve maximum leverage against Canada and Mexico ahead of these negotiations. It all, Trump's willingness to throw around

tariff threats willy nilly does raise important questions about what the value of the USMCA or KUSMA is anyway. I mean, if you have a trade agreement with your allies, but you're also running around threatening them left, right, and center, what is the value of that trade agreement? The whole purpose of a trade agreement is to provide certainty. It's to allow businesses to make long-term investments because they believe that there is secured access to other markets.

If Donald Trump is running around threatening us on fentanyl and migration, threatening us on defense issues, threatening our auto industry, our dairy industry, all this kind of stuff, even if we get to a renegotiated Kuzma and NAFTA, if you're a company, are you really going to bank on that? So from what we've talked about here, it honestly seems like these policies don't make a ton of economic sense always. It sounds like it's maybe more based on what Trump values. So I guess how are we in a country like Canada, how are we meant to respond to this, Mark? Do we try to follow logical economic

policy even though they're not necessarily doing that? One of the key things is understanding what he's trying to achieve. And there is the economic goal of essentially prioritizing certain types of manufacturing workers over other types of workers. That's just part of the Trump economic vision. It is a manufacturing first economic nationalist vision. So steel workers as opposed to service workers or something. Sure.

Yeah. It's important to also understand that the national security aspect of this too, which, again, takes you back to the whole China tariff question. They really are trying to reorient global supply chains away from China for national security purposes. And that creates an opening for Canada. We have enormous amounts of energy. We have enormous amounts of energy.

We have enormous amounts of minerals. One of the things that the US in both parties, basically everybody in Washington is terrified about is the lock that China has on a range of metal mining and refining. Metals aren't typically mined in China per se, but they own mines around the world and enormous amount of refining capacity for a whole range of minerals. And metals takes place in China.

And so one of the big goals of this nationalist trade policy is to shift those supply chains away from China because for national security purposes, in case they ever go to war with China, and that's the context in which Canada could play a really big role. So you see this argument being made, I mean, most explicitly by somebody like Doug Ford, Premier of Ontario, who's going around talking about Fortress Amcan, as he calls it, this idea that Canada and the US can work together to create secure supply chains for energy, for minerals,

for metals, essentially to achieve a national security goal. So how to think about all this stuff at the end of the day, we're not going to be able to convince Trump not to proceed with some tariffs. He is a true believer in these things. He is willing to inflict pain in the form of higher prices for consumers and damage to certain types of workers to achieve a certain vision and redistribute labor throughout his own economy. Maybe he can be talked down if he sees markets reacting in incredibly bad ways or if inflation surges in the wake of a whole range of tariffs. But the guy is a true believer and I think we're going to need to live with that reality.

But if you think about the national security angle, there's lots of threads that Canada can kind of pull and leverage that Canada has. Mark, thank you so much for taking the time to be here. Hey, it's great to be here. That's it for today. I'm Maynika Ramon-Welms. Our producers are Madeleine White, Michal Stein, and Allie Graham. David Crosby edits the show. Adrian Chung is our senior producer

and Matt Frainer is our managing editor. You can subscribe to The Globe and Mail at globeandmail.com slash subscribe. Thanks so much for listening and I'll talk to you next week.