Donald Trump’s tariffs loom suddenly through the fog of trade war

Another week in which we’re on the brink of the biggest trade war since the 1930s and it’s not even in the top two issues facing the world. The US has switched geopolitical sides and is now backing Russia against western Europe on Ukraine. The dismantling of America’s federal government and the country’s guardrails against autocracy continues apace. And you’re telling us the North American auto industry might grind to a halt? Get in line and wait your turn, dude. In today’s newsletter I’ll look at the threats that have returned against Canada and Mexico, and also reflect on a truly boneheaded bit of policymaking, the UK’s decision to savage its aid budget. The Charted Waters section, which looks at the data behind world trade, is on the recent performance of US stock markets.

This week it’s Mexico and Canada. We think.

In case you’ve lost track, let me sum up. Tomorrow (March 4), the suspension of the 25 per cent tariffs on Canada and Mexico a month ago will expire. On March 12, the 25 per cent global tariffs on steel and aluminium imports are due. In early April, the bogus “reciprocal” tariffs will apparently be unveiled. Also Trump says he’ll put 25 per cent tariffs on EU imports, which may or may not be the “reciprocal” ones. And on Saturday he announced a new investigation into the national security implications of relying on timber (known as “softwood lumber”) from Canada, escalating a long-standing US-Canada trade dispute. Trump has previously said he’s looking at tariffs on softwood lumber of — wait for it — 25 per cent, his go-to number.

I appreciate all the attempts to analyse these instruments systematically, but that implies a degree of coherence I don’t think the process has. In Trump’s mind they clearly all blur into each other. Last week, he said the Mexico and Canada import taxes would be imposed in April. White House officials subsequently tried to clarify what he meant, but they didn’t seem to know either. I said the Trump presidency would be very hard on news reporters, and kudos to Reuters and Bloomberg for accurately reporting the chaos rather than logic-washing it.

Anyway, the idea subsequently emerged from the fog that the Mexico and Canada tariffs are back on for tomorrow, though possibly at less than the original 25 per cent, together with another 10 per cent on China. But the administration has moved on from pretending the levies are merely aimed at fentanyl and immigration. With respect to fentanyl, Reuters quoted commerce secretary Howard Lutnick last week as saying: “They have to prove to the president that they’ve satisfied him in that regard. If they have, he’ll give them a pause, or he won’t.” All clear? Good.

On cue, a new potential condition for holding off the tariffs has miraculously appeared. Treasury secretary Scott Bessent has had another bright idea after his wheeze for gradual tariffs was rejected. He now says Canada and Mexico should build a “Fortress North America” — his actual chosen expression, not a pejorative description — by joining the US in putting import taxes on goods from China. Will this forestall the tariffs tomorrow? “We’ll see.”

While there’s no reliable logic in all these real and threatened actions, there’s certainly a consistent pathology. Trump trade policy is a stew of multiple flavours of tariff spiced with illogical and shifting rationales and steeped in a simmering broth of protectionism and resentment. Anyone in the administration can try adding something to the pot, though what actually gets served up on any given day is at the whim of the president.

So how to respond? Last month, Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau did a pretty good job of threatening to retaliate and instead agreeing a symbolic deal on fentanyl. But what Bessent (who claims Mexico is already on board) is asking for is much more dangerous — essentially to copy and paste US tariff policy towards China at the whim of Washington.

There is alarming precedent for this. Under pressure from the White House, Canada last year matched the Biden administration’s tariffs (it called them “surtaxes”, which fooled no one) on Chinese electric vehicles, steel and aluminium. While the Biden administration worked in a more logical and predictable way than does Trump, the episode shows the damage it did, normalising coercive protectionism and encouraging the likes of Canada to join the US in showing disdain for WTO rules. Trump’s plans are a progression from Biden’s actions rather than a pure aberration.

There’s a temptation to give Trump what he wants provided it’s limited to a few products. But why would Sheinbaum or Trudeau think it would end there? Why imagine that any deal with Trump will stick? The fentanyl deal has lasted just a month. Ironically enough, given the opioid connection, going along with Trump is like joining a drugs gang — there’s the risk you have to keep doing crazier stuff to show your loyalty, and then you’re in too deep to leave.

It’s a bit harsh expecting Canada and Mexico to provide a practical demonstration of just how damaging Trump’s tariffs will actually be by simply refusing to go along. But if Trump is really prepared to risk the US economy by imposing high and sweeping tariffs, it’s hard to see that the stress test can infinitely be put off.

The UK’s shameful retreat on aid

It’s been a very good week indeed for British Prime Minister Sir Keir Starmer. First, he apparently dodged Trump’s wrath over trade. Then he dealt with the fallout from the Trump-Zelenskyy catastrophe, hosting a summit at which Europe, at least rhetorically, showed itself united behind supporting Ukraine.

But given Trade Secrets’ interest in aid and development, I can’t let pass his truly awful decision to cut overseas development assistance (ODA) from 0.5 per cent to 0.3 per cent of gross national income (GNI), ostensibly to fund increasing defence expenditure. Rather than systematically look at defence and development in the forthcoming spending review, it just shifts money from one arbitrary input target to another.

It was a plan sprung at the last minute on the UK’s development minister, who quit on principle with one of the better resignation letters in UK politics. Less than three weeks earlier, UK foreign secretary David Lammy was chiding the US for cutting aid.

The cynical, performative decision to sacrifice aid is a long way from the Tony Blair and Gordon Brown Labour governments, which assembled a coalition including campaigners, the military, celebrities and faith groups to build the case for ODA reaching 0.7 per cent of GNI. Brown, having also attacked Elon Musk for the US aid cuts, was rather more silent last week on his own party’s actions. The UK’s development campaigner community is currently in shock, not having seen this coming at all.

So what happened since the last Labour government? Last week, just before the announcement was made, I talked on the FT’s Economics Show podcast with Minouche Shafik, former permanent secretary at the Department for International Development (also ex-IMF, World Bank, Bank of England, you name it). She was exceedingly gloomy that we could ever get back to the situation of 15-20 years ago, and cited the backlash against globalisation, fiscal pressures and a zero-sum view of international relations.

That’s no doubt all true, but I can’t help feeling that the obsession with focusing on the volume of aid was unhelpful from the beginning. It meant huge amounts of effort going into meeting after meeting where ministers would make pledges of uncertain credibility. Brown in particular induced increasing cynicism with endless “bold new initiatives” that usually involved repackaging the same money.

There wasn’t enough focus at the top of government on what the aid was doing or its quality. When the Conservatives started to cut ODA as a share of GNI, they began by diluting its definition, a process that has steadily worsened. Almost half of British “foreign aid” will now be spent within the UK, on housing and processing refugees.

On this I think Shafik is right — we’re not going back to the days when aid had automatic public and political backing and it was just a question of pumping up the volume. Support for ODA will need to be built up again by showing what it can achieve. But it’s hard to imagine that happening under a government that treats the whole issue with such casual contempt.

Charted waters

If it’s true that Trump’s policy is driven by movements in the stock market, he’s likely to be pretty concerned by the fall in US share prices in February. The fact that he’s still threatening tariffs despite this suggests the situation’s a bit more complicated than that.

Trade links

• The FT reports that foreign exchange markets are increasingly dismissive of Trump’s threats over tariffs, suggesting possibly dramatic movements if he does impose them on a big scale.

• China’s ecommerce suppliers are rethinking how they do business after Trump temporarily stopped the tariff-free “de minimis” allowance and is threatening to end it permanently.

• Columbia University’s Petros Mavroidis argues in a paper for the think-tank Bruegel that Trump’s “reciprocal” tariffs aren’t actually reciprocal and are a terrible idea.

• Matina Stevis-Gridneff of the New York Times reports from the US-Canada border, where immigrants are increasingly coming out of the US rather than into it.

• Georgetown University’s Jennifer Hillman argues that the International Emergency Economic Powers Act (IEEPA) that Trump is using to impose most of his tariff plans is illegal, since Congress has not delegated the use of such broad powers to the president.

• The South China Morning Post looks at China’s new diplomatic strategy to bring the EU closer, arguing to European policymakers that the US has abandoned them.

Trade Secrets is edited by Harvey Nriapia