1 week Ago By Jesse Kline
Article content In one fell swoop last week, U.S. President Donald Trump sent global markets into a tailspin, upended business confidence and reversed decades worth of trade liberalizations.
Hot off the heels of the COVID pandemic, the world is now facing another major economic crisis — only this one is entirely man made. On Wednesday, universal tariffs ranging from 10 to 49 per cent will be applied to imports from 180 different countries , compounding the pain caused by the president’s across-the-board tariffs on non-CUSMA compliant goods from Canada and Mexico, 25 per cent steel and aluminum tariffs and his new 25 per cent levy on vehicles and parts sourced from outside the United States. The reaction from the worlds of business and finance has been swift.
Wall Street witnessed its worst two-day sell off in the past five years last week. International markets continued their downward trend on Monday, with Japan’s Nikkei index and the Shanghai Composite Index dropping over seven per cent. Last week, automaker Stellantis announced it was pausing production at two of its North American plants — one in Canada, which will affect 3,200 jobs, the other in Mexico — and laying off 900 workers at five U.
S. factories. Here at home, we are already witnessing signs of a looming recession.
Canada lost 33,000 jobs in March, according to Statistics Canada, and even more full-time jobs, which nudged unemployment up to 6.7 per cent. Not only will the new trade measures have a deleterious effect on America’s trading partners, they will significantly increase the cost of goods for inflation-weary American consumers.
The textile and footwear industries are warning that 97 per cent of the clothes and shoes sold in the U.S. are imported from abroad, and that the new tariffs on textile-producing countries like Vietnam, Cambodia and China could raise the price of some items by over 50 per cent.
This is one area where the positive benefits of international trade can easily be seen. Thanks to free trade, offshoring and strong competition, which serve to keep prices down, U.S.
consumers paid about the same amount for clothing last year as they did in 1994, according to data from the U.S. Bureau of Labour Statistics.
Now, the head of the Footwear Distributors and Retailers of America (FDRA) is warning that the price of a cheap pair of Chinese-made children’s shoes could increase to $41 from $26, which will strain low-income households. The cost of an average car is also expected to rise between $5,000 and $10,000 , which really puts the uproar over the price of eggs in the U.S.
into perspective. All told, Trump’s tariffs will cost the average American household $1,900 this year alone, according to the Tax Foundation think-tank, which amounts to “the largest tax hike since 1982.” The administration is hoping that the impact of the tariffs can be offset by tax cuts, which are currently being debated by Congress .
Yet most of the tax relief being proposed by Senate Republicans is merely an extension of cuts that were implemented under Trump’s first term, meaning that most Americans’ tax bills will stay relatively stable, while their cost of living will increase dramatically. The Trump White House is also banking on companies moving production back to the United States en masse, but that is easier said than done. For one thing, America simply does not have the low-skilled workforce necessary to produce all the goods currently made in developing countries, especially as it continues to kick out millions of undocumented immigrants.
Even if it did, the country’s high minimum wages would make it incredibly costly. At best, any factories that move to the U.S.
as a result of Trump’s trade policies will rely heavily on automation and will not bring the corresponding jobs the president has promised. And then there’s the problem of inputs: in a letter to U.S.
Trade Representative Jamieson Greer, the FDRA claimed that the typical shoe contains 70 materials that cannot be sourced from within the United States, ensuring that even if companies started producing domestic footwear, they would still have to pay tariffs on many of the raw materials. Automakers similarly find themselves caught between a rock and a hard place. Moving factories that produce auto parts and vehicles to the U.
S. would take years. And even American-made vehicles contain thousands of components sourced from around the world.
Switching to a U.S. supplier for a single part can take months, as they have to be rigorously tested, and is highly dependent on whether domestic manufacturers have excess capacity.
Most importantly, in order for companies to make long-term plans to reshore production, risking hundreds of millions of dollars in the process, they need certainty and stability — characteristics the Trump administration is not exactly known for. From the start, Trump seems to have been making up trade policy on the fly. A tariff announced one day can be toned-down, delayed or scrapped the next if a foreign leader tickles him the right way.
Even his long-awaited announcement of “reciprocal tariffs” turned out to be nothing of the sort: to calculate the trade barriers other countries impose on the U.S., the administration simply took each country’s trade deficit and divided it by its exports to the U.
S. This back-of-the-napkin math doesn’t actually measure trade barriers at all. Of course, we shouldn’t expect Trump to heed any of the economic arguments against tariffs or show the slightest bit of concern for the economic destruction his policies have wrought.
He lives in his own reality that’s completely impervious to facts, and it was clear from his press conference last week that he thinks tariffs are the best thing since sliced bread and are already working wonders. Yet it is not at all clear that Congress will allow Trump to conduct his constitutionally dubious trade war indefinitely, especially if the effects of Trump’s policies start to hit Main Street America and Democrats make gains in the midterm elections. Last week, four GOP senators broke rank and voted for a bill to overturn Trump’s “emergency” measures against Canada.
Although it’s unlikely to become law, it shows that some Republicans are having a hard time sacrificing their free-market principles for Trump’s childish fantasies about returning the American economy to the state it was in 80 years ago. If the tariffs play out how virtually every economist thinks they will, resulting in job losses and significant increases in the cost of living, congressional Republicans will find it increasingly hard to support the president’s agenda without alienating their voters. Eventually, Congress will be forced to question why it shirked its constitutional responsibility as a separate but equal branch of government and placed so much power over trade and foreign affairs in the hands of one man.
In this, there is hope for Canada and the rest of the world, as long as we continue to fight back and put economic pressure on the U.S. But in the meantime, we’re all going to have to contend with the effects of a global economic crisis that will have been entirely preventable.
National Post [email protected] Twitter.com/accessd.
