Donald Trump’s coercion descends into chaos

Well, last week was a week and a half. Tariffs of 25 per cent were imposed on imports from Mexico and Canada. Then they swiftly came off again. First on autos, and then on anything covered by the US-Mexico-Canada (USMCA) preferential trade agreement, though it wasn’t precisely clear what that meant. Trump said he might impose tariffs on Canada on Friday, or maybe on Monday or Tuesday this week. He confused the matter by talking about “reciprocal” tariffs, which are supposedly a different thing.

We’ve got more fun coming up this week, with duties due to be imposed on steel and aluminium (aluminum, whatever) imports from everywhere on Wednesday. Does anyone believe that will happen? Does anyone believe in anything? Is there such a metal as steel? Does America exist? Today I run through the different theories of what Trump is trying to do with all this confusion, and note that he’s threatening to do a container-load of damage to shipping on top of everything else. The Charted Waters section, which looks at the data behind world trade, analyses lumber prices amid the pause in the US-Canada trade war.

Clumsiness or choreography?

So what the hell is Trump up to? Pausing only to note our watchword on these matters — surely I can just link to it without typing it out by now — I see three main possibilities.

1. The Trump administration has a well-prepared plan with a limited number of goals and at least an equal number of instruments to hit them, thus satisfying the Tinbergen Rule.

2. The Trump administration is pursuing a version of Richard Nixon’s madman theory, doing crazy tariff stuff to soften up trading partners into big concessions on currencies and buying US debt. My FT colleague here explores the question of whether this is the strategy.

3. The Trump administration is filled with people who are continually contradicted and undermined in public by their capricious boss, and to save face they claim it’s a cunning plan in the same way my cat repeatedly pretends she always intended to fall off the sofa and land on her nose.

By now we can discard 1), as the administration is clearly trying to hit multiple (mutually contradictory) targets with one instrument. The great Doug Irwin, whom I interviewed on the Economics Show podcast, famously says tariffs are traditionally aimed at three Rs — revenue, restriction (protectionism) and reciprocity. For Trump, I’m going to add three Cs — coercion, clientelism and chaos. (Those of a cynical disposition may replace “clientelism” with a different “c” word with three syllables, implying personal rather than political favours.) Trump seems to be trying to hit at least five of those at once.

It’s empirically hard to distinguish between 2) and 3), because they are, as we economists say, observationally equivalent. Highly professional misdirection looks like genuine bumbling to the untrained eye. Personally, I’m firmly in the 3) camp. Why? First, paradoxically enough I don’t think this administration has the discipline to do chaos well. I find it hard to believe that someone like commerce secretary Howard Lutnick — who said (eight minutes in here) that the EU imposes 100 per cent tariffs on US cars, when the number is actually 10 per cent — is really playing 4D chess when he says multiple different things in a day.

Second, it doesn’t appear to me that the Trump administration is actually striking terror into foreign governments so much as repeatedly punching itself in the face. Or, if it is scaring anyone, it’s so random and untrustworthy that no one will possibly believe it will stick to any deal on lifting tariffs in return for action on currencies or anything else.

As a counterpart to this chart on trade policy uncertainty that’s been doing the rounds, you can see below the main US, Mexican and Canadian equity indices since Trump’s inauguration. Given their relative sizes and openness to trade, the US market is far more important to Mexico and Canada (their exports there equal about 30 per cent and about 20 per cent of GDP respectively) than vice versa (US exports equal about 1 per cent of GDP to each). And yet the US S&P 500 has contrived to underperform the other two. It’s quite an achievement to threaten much smaller neighbours, yet inflict more damage on yourself. (Yes, yes, I know equities are a highly inexact measure of economic performance. But I was told for years that Trump cares about the stock market.)

The evidence is mounting that the tariff chaos — and specifically trade policy uncertainty, not economic policy in general — is affecting the economy. The Institute for Supply Management survey for the manufacturing sector last week showed a big drop in new orders and a spike in price expectations, with respondents full of concerns about tariffs. Even Trump himself has declined to rule out the idea that the US is heading for recession.

If the US continues to damage itself by tariff tergiversations, its trading partners’ emotions are going to go from terror to bafflement to, eventually, possibly even something close to pity. The US does have stronger coercive tools than tariffs, such as removing military security guarantees or cutting countries off from the dollar payments system. But it’s already doing the first by abandoning Nato. It’s not a threat it can endlessly repeat, nor one it can credibly promise to reverse in return for co-operation. Blocking countries from using dollars would be a truly dramatic move but, again, one more likely to make other governments think the US is irredeemably untrustworthy than anything else.

Any port in a storm, unless you’re Chinese

It’s not just the big, dramatic stuff with tariffs the Trump administration is doing to the global trading system, you know. It’s also the casually damaging, lower-level things. His team doesn’t appear to have thought things through very well. I know, I was surprised too.

The elimination of the so-called de minimis allowance for imports from China, which had the US Postal Service inundated with low-value parcels, was obviously the administration’s early run at inflicting damage. But now that’s been put on hold to an unspecified date in the future, it’s having another go.

This time it’s a bunch of new port fees designed to boost the US shipbuilding industry against Chinese competition. ($1mn for each US port call if the vessel is run by a Chinese operator, another $1mn if the operator has a lot of Chinese ships, whether already in use or in their order book, and $1.5mn if the vessel was built in China.) The proposal will gradually increase the proportion of US exports that have to be carried in US-flagged vessels by US operators.

The US trade representative’s office floated this soon after Trump’s inauguration. The notice period for comments ends on March 24, and the shipping industry is in quite the flurry about it. Like some of their other bad ideas (the notion of sweeping steel and aluminium tariffs for one), the shipbuilding plan was inherited from the Biden administration at the behest of labour unions.

Now, you can see in principle why the US might regard it as strategic to have a shipbuilding industry. But, as the World Shipping Council pointed out in its submission to the original Biden-era proposal and repeated recently, not only is the fee likely to make some lower-value container-loads uneconomic, it also perversely punishes shipping companies for what shipbuilders are doing. And it will mainly affect vessels that have already been built.

Moreover, if they’re charged for each port visit, ships will stop doing drop-offs at smaller US ports. In turn, those ports will wither, and cargo will have to be trucked over longer distances. Others in the industry have pointed out that, with opaque ownership structures in the sector, the nationality of an operator often isn’t clear.

As for the requirement regarding exports in US-flagged ships, we know exactly what this will do. It’s an international version of the Jones Act, which applies to inshore shipping, and is notorious for creating inefficiencies. This is a bad, unworkable idea all round. That doesn’t mean it won’t get implemented, of course.

Charted waters

Delaying tariffs on imports from Canada has led to a fall back in the surging price of lumber, which is the subject of an existing US-Canada trade dispute that Trump wants to escalate.

Trade links

• Europe is rushing to find a replacement for Elon Musk’s Starlink after the US withdrew military aid and intelligence-sharing last week. (I wrote recently about the various satellite initiatives and what they revealed about their respective government sponsors.)

• Former Bank of Canada and Bank of England governor Mark Carney has won the race to become leader of the governing Liberal party and hence Canada’s new prime minister, with the Liberals’ poll standings hugely boosted by the trade war with the US.

• Japan is trying to bargain for exceptions from the threatened steel and aluminium tariffs.

• Reuters reports that concerns over the US-China trade war have caused shipping companies to move operations out of Hong Kong.

• With football fans already reeling from the devastating news that the final of the 2026 World Cup in North America will feature a half-time show led by the turgid Coldplay, Trump decided to make things worse by claiming that his tariff campaign would add to the excitement of the tournament.

Trade Secrets is edited by Harvey Nriapia