Tariffs - A War Without Guns
For those that have been hiding under a rock, President Donald Trump has accused China, Canada and Mexico of:
- Not preventing fentanyl from entering the US.
- Allowing unauthorized immigrants to enter US by permitting them access to US borders.
- The unfair trade deficits the US has had way too long with each of these nations.
Following conversations with Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau, President Trump agreed to delay the 25 percent tariffs on imports for one month.
Yet this reprieve is temporary and the threat of a multifront tariff war still looms. Mexico, China and Canada have stated they would launch retaliatory tariffs on the US.
Trump now warns that Europe is his next target.
Before I go any further, does everyone know what Tariffs are?
Some countries have limited natural resources for producing certain goods and services. To enjoy the fruits of those goods and services, they trade with other countries.
The purpose of Tariffs is to influence, raise revenues, protect domestic industries’ competitive advantages and/or to exert political leverage over another country. Tariffs restrict imports by increasing the price of goods and services purchased from another country, making them less attractive to domestic consumers. However, transactions between trading partners are not always amenable. Policies, geopolitics, competition, and other factors can make trading partners disagree.
Now for a little history lesson
Trump is not the first US president to wage tariff wars. He is following in a long list of predecessors who used tariffs to attempt to get other countries to follow America’s wishes.
So how have these previous tariff wars played out?
1930 Smoot-Hawley Tariffs
In 1929, months after the Wall Street stock market crashed, The Great Depression had begun.
US President Herbert Hoover approved the Smoot-Hawley Act. The intention of the tariff was to protect US farmers from foreign competition. Once it expanded to a broader list of products, the act immediately triggered trade wars.
By 1933, US exports dropped by 61 percent. Hoover’s popularity tumbled and his re-election bid failed.
1960s Chicken War
Red meat was rationed during World War II, and the US launched an ‘eat more fish and poultry’ campaign to Americans. The increase in chicken farming lowered the price. Europe started buying inexpensive American chicken and European farmers were being priced out.
In 1962 To compensate, the European Economic Community, and many Euro-countries imposed tariffs on American chicken. US poultry exports to Europe fell sharply.
1982 lumber war between the US and Canada
Canada always has grown and harvested lumber from public land, with prices decided by the Canadian government. Whereas US lumber is harvested from privately owned lots. The US claimed Canada was unfairly subsidizing its softwood lumber, which led to multiple tariffs and retaliatory tariffs.
1987 Japanese Automobiles Tariffs
In 1987, President Ronald Reagan imposed huge tariffs on Japanese imported automobiles.
Things soured for the Japanese economy, and exports dropped. In the 1990s, Japan fell into a recession for nearly a decade.
1993 Tariffs on Bananas
In 1993, the bloc placed tariffs on bananas from Latin American countries to give small farmers in its Caribbean and African colonies an advantage. The US argued that this was against the free trade act. Why, you ask? Most banana plantations in Latin America were owned by American companies. Finally, the US imposed 100 percent tariffs on European products (eg Scottish cashmere and French cheese).
In 2012, the EU signed an agreement with the Latin American countries, ending the WTO (World Trade Organization) cases.
2002 Steel Tariff war with Europe
To boost the American steel industry, President George W. Bush places tariffs on steel from foreign countries. Mexico and Canada were exempt, but Europe was hit hard.
Imports of steel from tariffed countries plummeted in 2002, and 2003. The US started importing steel from countries that were not tariffed.
Overall, US steel imports grew after the tariff was imposed. However smaller steel companies either went bankrupt or were acquired by larger ones.
In retaliation, Europe threatened tariffs on a range of American products. Days before Europe imposed their tariffs, Bush lifted the steel tariffs.
2018: Not Trump’s first Rodeo (er … Tariff War)
In January 2018, Trump directed tariffs on solar panels and washing machines. The country source did not matter however China was the world’s largest manufacturer of solar panels. Beijing retaliated with a 178.6 percent tariff on sorghum from the US. In June 2018, Trump then slapped a 25 percent tariff on hundreds of products from China.
Trump’s current proposed tariffs appear to mimic the 2018 tariff, which strengthened jobs for metal makers but hurt manufacturers that use metal to produce goods. Unfortunately, there are so many more industries that use steel than make it. Manufacturers of everything from household appliances to military vehicles overnight had their costs increase.
Canada struck back placing tariffs on many products imported from the US. Then the US and China imposed multiple tariffs back and forth. After negotiations, a tariff truce was reached in January 2020.
Back to our question above. How have these previous tariff wars played out?
Most often one Country benefits while multiple suffer.
For example, Trump’s 2018 economical attack on China. The entire steel industry had to lay off 75,000 employees that they would not have if it were not for the tariffs.
What makes the recent Trump threatened tariffs very different is their expanse. Previous trade wars targeted tariffs on specific products, but this time almost all products are being taxed.
What is also very interesting is that Trump is threatening tariffs on the 2 economies that are most tightly integrated with his own.
What are Canada’s options?
Canada’s and Mexico’s initial response was to both send 10,000 soldiers to their respective borders to halt fentanyl smuggling and cease undocumented immigrants attempting to enter the US.
Not since the War of 1812, have Canadians ever needed to look over their shoulder. For decades, Canadians been positively engaged with our southern partners, and building success together. A sincere win-win.
Now many Canadians are taking a cautious approach to business because of uncertainty. Just like during many economic slowdowns, more forward-thinking businesses are taking advantage of this economic dip, to finalize very attractive pricing being offered for capital purchases.
March 4 is coming up fast. Some analysts believe Trump may not even follow through. However, the potential impacts cannot be ignored.
President Trump is a master negotiator. Is he asking for the stars, knowing if he only hits the moon, he wins?
Someone might tap President Trump on the shoulder and whisper in his ear, ‘Canada’s population includes thousands of Bears. If you poke them, they will never back down.’
President at A.M. Gatti, Inc.
6moNice job with the headline graphic 😂 He sure is poking the bears, but as of now every single one of them HAS backed down.
Of course you forget the Tariffs which were imposed after the civil war leading to not only Hugh growth and full employment but also a big increase in the stand of living of the average working man. Trumps policy is we will charge you the same tariff as you charge us which one way or another in effect you have free trade