U.S. President Donald Trump addresses the Detroit Economic Club in Detroit, Mich., on Oct. 10, 2024.Rebecca Cook/Reuters
John Rapley is an author and academic who divides his time among London, Johannesburg and Ottawa. His books include Why Empires Fall (Yale University Press, 2023) and Twilight of the Money Gods (Simon and Schuster, 2017).
On the day Donald Trump was inaugurated as the 47th President of the United States, Canadians got a taste of what its trade ties with America will be like over the next four years. In a matter of hours on Monday, the country went from holding its breath while awaiting what the incoming president would say on the 25-per-cent tariffs that he had threatened to impose on Canadian goods, heaving a sigh of relief when Mr. Trump made no mention of them in his inaugural address, then getting sucker-punched later in the day when he said they would come as early as next month.
Some observers search for method in Mr. Trump’s madness, suggesting this whiplash is a deliberate tactic to put opponents on the backfoot. Perhaps. But it may also indicate something less deliberate and, for him, more problematic – the competing demands coming from his unwieldy coalition of MAGA voters and the oligarchs surrounding him. It might surprise you which camp’s interests are aligned with Canada’s, and it’s not at all clear this novel alliance will hold together, because trying to please them all may prove impossible.
In his first term in office, Mr. Trump drew little support from the country’s corporate boardrooms. Instead, his somewhat inchoate vision of reviving domestic manufacturing with tariffs appealed to a mix of local business leaders – a sort of provincial bourgeoisie – and the traditional working class, which had suffered the most from the erosion of the country’s industrial base.
This time around, his coalition looks quite different. While his voters are still looking to him to bring down inflation, raise their wages and rebuild their communities, his corporate backers are a handful of extremely wealthy tech oligarchs. This puts him at risk of falling into the same trap which defeated the Biden presidency – making grand plans that lose sight of how things are going in the communities of the people who voted for him.
In American small towns, the prices Mr. Trump promised to bring down on Day 1 are still increasing, and the recent rise in the world price of oil will soon show up at the gas pumps. The crisis in commercial real estate still festers, which could yet lead some regional banks to go to the wall, limiting access to banking in small towns. And with interest rates rising, real house prices are falling. Given that their home is the main asset for most Americans, they won’t be feeling the love of the meme-coin and stock-market rallies that have so benefited Mr. Trump and his friends.
This is what makes his tariff policy so complicated. While in the first term the target of Mr. Trump’s ire was China, this time he has turned his sights on his neighbours, particularly Mexico and Canada. This may reveal the influence of the tech oligarchs, and particularly Elon Musk, who have close business ties to China. China is both a major market for Tesla and the location of much of its production, while the American companies at the forefront of AI have both potentially huge markets – given the scale of China’s own investment in AI – and suppliers in the East. They don’t necessarily want tariffs to be placed on Canada, but they would be hurt more by measures taken against China
But unlike tariffs on China, targeting their neighbours will hurt, not help, American manufacturers. It would actually worsen the U.S.’s trade deficit with the world while rewarding Korean producers at the expense of American ones integrated into North American supply chains. Higher inflation and job losses could result. Mr. Musk might not mind; MAGA will. One way to sum it up might be to say that the tech oligarchs look east, while the United States’ traditional manufacturers, and in particular its automobile industry, look north and south of the country’s borders. And it’s the traditional industrial sector which has provided such a large share of Mr. Trump’s electoral base, not to mention that of his party.
Another example of this is Mr. Trump’s economic strategy to place a huge bet on artificial intelligence. Although his announced US$100-billion AI infrastructure program sounds impressive, it will do little in the coming years to change life in American small towns.
Oddly, Mr. Trump also seems to think that encouraging AI requires him to eliminate other industries. Unlike the Chinese, who are promoting the development of AI alongside renewable-energy technologies, he is actively trying to stop the energy transition encouraged by the Biden administration, and has halted US$300-billion in green-infrastructure funding. At the moment, the United States leads the world in incoming FDI, which helps explain the huge rally seen in almost all American asset classes over the past few years. But no small amount of this investment has been incentivized by government policies. With these scrapped, investment will likely drop, possibly outweighing the new projects Mr. Trump has announced. The resulting job losses would fall mostly in congressional districts held by Republicans. They may thus start resisting their President in defence of the MAGA base.
This week’s tariff whiplash is a foreshadow of what is to come and a flick at an uncomfortable truth for the new President: Mr. Trump’s own position is more fragile than it appears. Although his popularity is now higher than ever before, his net approval rating is barely positive, not all his early moves went down well and some of his personal obsessions, such as taking revenge on his enemies or reclaiming the Panama Canal, count for little to his supporters.
For now, they seem willing to give him the benefit of the doubt. However, if conditions in the suburbs and small towns that voted for him don’t soon improve, all while the oligarchs rake in billions and he pursues vendettas, he’ll likely find sentiment turning against him as sharply as it did in his first term. He’s not up for re-election, so he may not care. But his party will, and it could eventually split his coalition into rival camps.
Canada’s politicians, struggling to work out how to deal with Mr. Trump, could benefit from noting this: His movement has a weak underbelly, one that benefits from continued close ties with Canada and some continuity with the recent past. It may be possible to find ways to subtly ally with it so as to undermine his belligerence.