Trump throws a tariff tantrum because he knows he’s weak

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John Rapley is a contributing columnist for The Globe and Mail. He is an author and academic whose books include Why Empires Fall and Twilight of the Money Gods.

It’s hard to know why President Trump has decided to impose his latest set of tariffs. The reasons he gives often vary or are incoherent. We’re left to surmise, like astronomers studying the background noises of distant galaxies, whether it’s a bargaining tactic, a trade strategy, a fit of pique or something else altogether.

So, let’s try to see this from the vantage point of Washington. What can we infer? Well, for starters, if you look at the exemptions and industries affected, the target list appears to be designed to minimize harm to the American economy, affecting only 5 per cent of imports, and none whose impact would be widespread, such as energy.

That has been the pattern with other countries that have recently suffered Trump’s tariff tantrums, such as Brazil. Whatever this reveals about leverage or negotiating tactics, what it seems to show above all else is an administration that is operating from a position of weakness, and knows it.

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Why weakness? Well, we know that with midterm elections about three months away, the tariffs aren’t popular, with seven in 10 Americans saying the levies have led to them paying higher prices. We also know that inflation and the cost of living are the top concerns of American voters as they head into those elections. Inflation abated slightly last month, but the resumption of war in the Middle East and the consequent return of American gasoline prices above US$4 a gallon have reignited fears.

We also know that the benefits to American producers, who are supposedly afforded protection by these tariffs, have been slow to materialize. Manufacturing employment, which had risen during the Biden presidency, has fallen since Trump returned to office. Rather than revive the industrial economy, the principal effect of the tariffs has so far been to raise prices for consumers or, in sectors such as automobiles where the cost of intermediate inputs has risen, lower profits. As a result, the job market remains weak and manufacturing employment has been declining. In short, the constituency backing these tariffs is smaller than that opposing them.

Couple weak wage growth with rising inflation, and we know that real incomes for the average American worker have in the past three months begun to decline. Rising inflation, in turn, is driving up interest rates, which is straining the finances of many American homeowners – not least because most new homeowners took on higher, often otherwise unmanageable, mortgages that they expected to come down with the falling interest rates they’d been promised.

Add it all up, and this would seem to be an inopportune time to produce headlines that you’ll further raise the prices Americans pay. Republicans running for re-election, pressed on whether they support the president’s trade war, will have to face Democratic opponents able to remind voters that Trump is lowering their standard of living.

So, it’s a reasonable bet that the White House will be coming under pressure to soften these tariffs before long. Even if Trump doesn’t care about the fate of his party, he’ll know that a Democratic sweep of Congress in November will make his job unpleasant. The prediction markets currently forecast a narrow Democratic majority in the House of Representatives and a Senate that is neck-and-neck but could easily be tipped over to the other side by more bad inflation news or a persistent funk in the stock market – which rising interest rates might well prolong.

Carney won’t rule out imposing retaliatory tariffs on U.S.

In the meantime – and the White House won’t say this because to do so would be an admission of weakness – the tariffs may not have the desired effect of squeezing the targeted Canadian exporters to the point that Ottawa cries uncle. What we know so far is that Canadian industries that have been singled out in Trump’s trade war have proved surprisingly resilient. The Canadian government thus may have more scope to ride out this spat than the U.S. one.

So, the Trump administration is probably anxious to bring a swift resolution to this issue that will enable the President to claim a victory and say he’s restoring American jobs and bringing prices back down. The tariffs are probably, therefore, a bargaining gambit.

Nevertheless, there will be limits to Trump’s willingness to compromise. Tariffs have become a defining element of his administration’s identity, the centre of gravity in U.S. politics has moved toward de-globalization and investors have resigned themselves to its inevitability, no longer rushing for the market’s exits at each tariff announcement. If in reduced form, tariffs will stay, as became clear with Thursday announcements of the new tariff regime to be applied to 60 countries.

With no hope of returning to the status quo ante, compromise will thus be inevitable. Both sides have weak hands, Canada because of its vulnerability to the loss of the U.S. market, Trump because of his vulnerability to domestic public opinion and jittery stock and bond markets. Critically, though, Canada doesn’t have the ticking clock of a November election.