President Donald Trump set 25% tariffs on all aluminum and steel products after reversing on his previous threats to enforce a 50% tariff.
Canada threatened to increase taxes on electricity sold to the United States before Trump said he would double the tariff rate. Canada removed the tax and Trump reduced the tariff to the original planned rate.
Europe and Canada have responded with tariffs of their own, however, with Canada imposing $21 billion in tariffs on U.S. steel products. The moves are the latest in a series of tariff battles between Trump and Canada, China, and Mexico.
Trump has used the threat of tariffs as a negotiation tool on immigration policy and illegal drug trafficking.
Trump successfully used tariffs against Colombia Jan. 26 when they would not accept a flight of deported illegal immigrants. Although Colombia initially threatened to retaliate with tariffs of their own, they eventually agreed to terms, causing Trump to postpone his tariffs.
Trump has stated his commitment to ending the movement of fentanyl across U.S. borders. He initially announced tariffs on Canada and Mexico on Feb. 1, set to take effect Feb. 4. He later paused the action after Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum promised to take action against fentanyl smuggling.
Trump resumed the tariffs March 4 when he determined that Canada and Mexico were not doing enough to stop the movement of the drug.
Secretary of Homeland Security Kristi Noem also stated that the purpose of the Trump tariffs is to stop Chinese fentanyl products from reaching the U.S.
“it’s time that we stand up for the people that live here and make sure that we’re stopping this war against our children,” she said.
Given the impact that increased tariffs would have on the Canadian and Mexican economies, it is likely that Sheinbaum and incoming Canadian Prime Minister Mark Carney will be willing to take extra steps to prevent fentanyl from reaching the U.S. If they do, Trump is likely to at least reduce the tariffs.
As effective as they have been so far as a means of negotiating, Trump must be careful not to escalate a trade war. Given that Canada is responsible for a much lower percentage of fentanyl than China or Mexico, Trump’s tariffs may not be as effective north of the border. That said, however, given how dependent the Canadian economy is on the U.S., they may have more incentive to stop the relatively small amount of drug smuggling in their country.
The Dow Jones Industrial Average dropped more than 1,000 points last week, likely due to tariff fears, before stabilizing Tuesday. Trump did not appear to be concerned and expressed confidence that the long-term effects will be positive.
TRUMP OFFICIALS ACKNOWLEDGE TEMPORARY PAIN AMID TARIFFS AND MARKET UNEASE
“There is a period of transition because what we’re doing is very big,” Trump said.
Trump should look to Reagan-era economist Arthur Laffer when deciding tariff policy. Laffer determined that there is a single tax rate that will generate the most revenue. Trump should apply the same principles to tariffs. He can find the middle ground between his tariffs being so small that they are ineffective and so large that they embolden other countries to escalate a trade war.