They Called His Bluff on Tariffs

The White House has announced tariffs of 25% on Canada and Mexico and 10% on China (and Canadian energy exports). This amounts to a $256 billion per annum tax hike and upsets the US’s two largest trade relationships. The tariffs had been threatened to force Canada, Mexico and China to work harder to interdict drug traffic, but it appears their leaders have called Trump’s bluff. All he could do to save face is impose the tariffs. They are not effective until Tuesday, so his taking this step may amount to raising the stakes and forcing the other players to fold. The International Emergency Economic Powers Act has been used for sanctions and seizures, but never tariffs, and Trump did not consult Congress as it requires. Courts may well block these tariffs. The US trade relationship with Canada and Mexico is largely tariff-free, so imposing such large ones is a destabilizing risk. Obviously, there will be volatility while this plays out.