Trump’s Most Inexplicable Decision Yet

By Rogé Karma

Tuesday, March 04, 2025

 

If you were setting out to design a trade policy that would harm the American economy while undermining political support for its leadership, you might come up with something like the tariffs that Donald Trump just imposed on Canada, China, and Mexico.

 

The new tariffs will raise prices for American consumers, weaken the American auto industry, and prompt severe retaliation from America’s top trading partners. With respect to China, a case can be made that tariffs would promote U.S. national security and domestic industry if they were targeted and well designed. But Trump’s blanket 20 percent tariff on all Chinese imports is neither. Meanwhile, the 25 percent tariffs on Canada and Mexico are utterly incomprehensible. There is no grand economic vision, geopolitical strategy, or even political logic behind them. International trade, like all areas of public policy, is a game of weighing costs versus benefits. Trump’s tariffs are the rare policy that might turn out to represent nothing but cost.

 

The most widespread and direct effect of the new tariffs will come in the form of inflation. Tariffs, which are literally a tax on imported goods, are often passed on to consumers in the form of higher prices, and Mexico, Canada, and China together account for more than 40 percent of U.S. imports. Yale’s Budget Lab estimates that the new tariffs will cost the average household anywhere from $1,600 to $2,000 a year.

 

Those higher costs will disproportionately affect the specific items that American consumers pay the most attention to. Survey after survey has shown that discontent with the broader economy in recent years has been driven more by high grocery prices than any other category of spending. Mexico is the largest exporter to the U.S. of fruits, vegetables, alcoholic beverages, and sugar, and Canada is the top exporter of meat, grains, baked goods, and cooking oils.

 

In theory, American farms could ramp up production to offset some of those higher prices. But that process could take months or years, and will be made all the more difficult by Trump’s deportation agenda—nearly half of the agricultural workforce is composed of undocumented immigrants—as well as the tariffs themselves, which will raise the costs of foreign fertilizer and farming equipment, on which domestic producers rely heavily.

 

The primary economic case for tariffs is that they shift demand toward domestically produced goods, which, in theory, should boost American industry. “I would just say this to people in Canada or Mexico: If they’re going to build car plants, the people that are doing them are much better off building here,” Trump told reporters at the White House when he announced the new tariffs yesterday afternoon.

 

That may come as a shock to, well, the American auto industry. The Big Three car companies have practically begged Trump not to go through with the tariffs. Canada and Mexico produce more than half of the individual car parts that American automakers import every year to assemble their vehicles in the U.S., including multiple components for which there exist literally no American suppliers. A recent report found that the new tariffs could raise the cost of a full-size SUV assembled in North America by $9,000 and a pickup truck by $8,000. American automakers “should not have their competitiveness undermined by tariffs that will raise the cost of building vehicles in the United States and stymie investment in the American work force,” Matt Blunt, the president of the American Automotive Policy Council, which represents the Big Three automakers, said in a statement yesterday. And automakers aren’t alone here. A broad survey of U.S. manufacturers found that the industry was already experiencing higher costs and lower employment in anticipation of the new tariffs.

 

The full economic cost of the tariffs will hinge on how Mexico, Canada, and China respond. Last month, Beijing placed 10 to 15 percent tariffs on American energy and car exports; today, it added chicken, wheat, corn, soybeans, dairy, and other food products to the list. Canada has also announced that it will apply 25 percent tariffs on $30 billion worth of American goods and extend them to $125 billion worth of goods in three weeks. (Mexico has yet to respond with measures of its own but has said it will do so soon.) These retaliatory measures will make it harder for American producers—the ostensible beneficiaries of tariffs—to sell their products abroad.

 

The official justification for the tariffs is to force Canada and Mexico to address the supposed “extraordinary threat” posed by illegal immigration and fentanyl trafficking at America’s borders. This is a transparent pretext to allow Trump to declare a “national emergency” that empowers him to impose tariffs immediately and unilaterally. Last year, the Canadian border was responsible for just 0.2 percent of the fentanyl seized by U.S. border authorities and 1.5 percent of illegal border crossings. Meanwhile, illegal immigration at the southern border has plummeted since early 2024 to near-record lows, leading Trump himself to declare, “The Invasion of our Country is OVER.” The amount of fentanyl seized at the southern border fell by about 20 percent last year, and Mexican President Claudia Sheinbaum has presided over a major anti-cartel crackdown since taking office in October.

 

Usually, when elected officials implement foolish policies, they do so because they believe the political upside outweighs the substantive downside. What makes Trump’s tariffs so unusual is that the politics of them also appear to be terrible. Trump promised to impose major tariffs during the campaign, and so he might feel that failing to follow through would undermine his credibility. But voters consistently cited inflation, not trade, as the single most important issue in the 2024 election, and Trump also made promises to lower prices. Now he seems to be going out of his way to break them.

 

A month ago, when Trump decided to postpone the Mexico and Canada tariffs just before they were set to take effect, I argued that they were never anything more than a hollow threat. I now know I was wrong—but I still don’t understand why a president would follow through on a policy likely to generate so much political backlash for so little gain.

 

The question now is how long the new restrictions will last. Perhaps a swift political backlash in response to rising prices will compel Trump to find a new pretext to declare victory and get rid of the tariffs promptly. Or perhaps the president will not only keep the tariffs in place but also open up new frontiers in his trade war. Trump has already announced plans to levy reciprocal tariffs on all countries that currently impose any kind of trade barriers on the U.S.—a policy that the Budget Lab estimates would cost American consumers up to $3,400 a year—as soon as April 2. Until yesterday, I would have said there’s no way that would happen. Now I’m not so sure.