Trump's Tariffs

As I have indicated here, here and here I do not believe the benefits of free trade are as great as it proponents indicate.  Although it does have some benefits it also has some very large negative impacts on the lives and livelihoods of many ordinary people.

While I would not lose any sleep over the end of NAFTA it is still a treaty that is in place and all signatories to it are compelled to adhere to it.  The same is true of the treaty that created the World Trade Organization or the WTO.  

A country like the United States is expected to honour its international committments.  If it does not it will have consequences for the US beyond a few jobs in the Rust Belt.

By not adhering to NAFTA and its committments under the WTO the United States has indicated that they cannot be trusted to live up to their international commitments.  As the United States has many, many, many of them that could spell trouble.  

The world is watching the US and there is increasing evidence to indicate that countries are moving to insulate themselves from the negative impacts of the words and actions of the current US administration.  For the most part the other Western countries are stuck with the US.  They can take some limited actions to mitigate risk but they really do not have any alternative but to work with the United States.  

The same cannot be said of the rest of the world.  Many of the US committments are with smaller, poorer countries that trade with the US and that provide US consumers with products that can be produced more cheaply that in the US.  Many of these countries are probably wondering if the US is willing to risk a trade war with its closest allies what are they willing to do to their countries.  Many if not most of these countries have probably been looking at alternatives that do not include sticking with the US and that search might be taking on an increased urgency.

I have stated several times in this space the China is actively working to replace the US as the predominent power in the international community.  Using diplomacy and money it is buying influence in the world.  It will actively exploit any action by the US that will allow it to pursue this objective.  We saw it with the US withdrawal from the Iran Nuclear deal and I believe the steel and aluminum tariffs imposed by the US on its closest allies has provided another opportunity for China to expand its global influence.  The pitch is obvious.  "The US cannot be trusted to live up to its committments but China can be trusted.  Let's talk about how we can help you."

The total dollar value of the tariffs that the US administration imposed on Canada is around $16 billion.  The GDP of the Canadian economy is over $1 trillion so in the grand scheme of things the impact on the Canadian economy is manageable.  Conversely, the total benefit of the tariffs on the US economy, which is 10 times bigger than the Canadian economy, will be negligable. 

In short, the total economic impact of the tariffs will not matter but the blow these tariffs will have on the reputation and status of the US will be significant and it will have an impact on any efforts it will take to maintain its influence in the world.