Trump's Latest Tariff Threat Is Straight From His First-Term Playbook

If President-elect Donald Trump’s first-term playbook is any guide, his latest threat to slap tariffs on major US trading partners is the start of negotiations rather than the end.

(Bloomberg) — If President-elect Donald Trump’s first-term playbook is any guide, his latest threat to slap tariffs on major US trading partners is the start of negotiations rather than the end.

In a gambit familiar to adversaries and allies alike, Trump said in a social media post Monday evening he would slap 25% tariffs on imports from Mexico and Canada and additional 10% duties on China, unless they clamp down on migrants and illegal drugs coming to the US. Those three countries account for about 40% of all US trade. 

It all had a familiar feel to a flurry of threats in his first term. In May 2019, Trump announced on social media that he’d impose a 5% tariff on Mexico within 10 days, and gradually increase it, unless the country stopped migrants from reaching the US southern border. Mexico complied and the tariff was never imposed.

“I’m feeling a lot of deja vu,” said Juan Carlos Baker, who helped Mexico negotiate the current trade deal with US and Canada. 

Trade partners during Trump’s first term “did learn something, and that experience comes in handy,” Baker said. “But I would warn against supposing that just because we have Trump 1.0, we know exactly what is happening and how to deal with it.”

One challenge this time is that Trump won’t take office for almost two more months. How far he’s willing to go, including damaging his own economy, is another big unknown. 

Trump’s threats to withdraw from the North American Free Trade Agreement led to its replacement, the US-Mexico-Canada Agreement. And those duties threatened on Mexico if it didn’t use its national guard to stop migrants came as that new deal was being sealed. 

He also hit China with a raft of tariffs, which were ratcheted back after a deal with President Xi Jinping’s government. He imposed levies on steel and aluminum from around the world, including from America’s biggest trade partner, the European Union. 

“Making these announcements two months before you’re in power is certainly signaling that you’re ready to begin negotiating,” Daniel Tannebaum, a partner at consulting firm Oliver Wyman, said on Bloomberg Surveillance Radio on Tuesday. “We’ll have to see what the new administration team actually does as they get on board.”

Two big things will be different in the new term.

First, Trump is more familiar with the levers of power. This time around, he plans to use the International Emergency Economic Powers Act to quickly impose tariffs by declaring a national emergency, the same law he used to get funding from a reluctant Congress for parts of his “border wall” in 2019, according to people familiar with the plans, who asked not to be identified discussing private deliberations.

His first tariffs, by comparison, took about a year to impose as necessary investigations crept through America’s trade bureaucracy. 

“The tempo of this will be fast,” said Dan Ujczo, a senior counsel at law firm Thompson Hine in Columbus, Ohio, who has worked on North America and China trade issues. The tariffs announced on Monday night are “tactical and transactional,” he said, “designed to achieve targeted results.”

Second, gone are some of the market-friendly, impulse-restraining officials from the first administration like Steven Mnuchin, his treasury secretary, or Gary Cohn, the former Goldman Sachs Group Inc. executive who reigned in Trump when he threatened to withdraw from Nafta, or even Rex Tillerson, the former Exxon Mobil Corp. chief who was his first secretary of state. 

Among most of the other recently announced nominees for this cabinet, the most important trait appears to be loyalty to Trump and his establishment-bashing approach. 

One major exception may be Scott Bessent, his pick to the lead the Treasury Department. The hedge fund manager has called for a gradual approach to trade restrictions and has appeared open to negotiating the exact size of tariffs.

America’s neighbors were quick to respond to Monday’s threat. Canadian Prime Minister Justin Trudeau called Trump to discuss border security and trade, according to a government official with knowledge of the matter. 

Mexican President Claudia Sheinbaum called for collaboration, but also hinted that her country would retaliate. That’s because tariffs would be a violation of the USMCA, leaving Mexico and Canada only to hit back with tariffs of their own. 

Trump’s impact on trade with China has endured. At one point he raised tariffs on practically all of the $500 billion-plus annual goods imports, showing a willingness to accept a cost on American consumers, who most economists estimate ultimately pay for the tariffs.

Those duties were lowered as part of a 2020 trade deal with Beijing, when it promised to buy more American goods and stop intellectual property theft. The levies on about $300 billion of goods that Trump left in place were sustained by President Joe Biden, who even raised some of them earlier this year, a testament to the staying-power of some Trump decisions.

Jan Hatzius, chief economist at Goldman Sachs, said that it’s important not to conflate Trump’s tariff threat with the larger 60% tariffs on China and 10%-20% on the rest of the world that he promised on the campaign trail to rebalance trade toward the US. In other words, this may be just the beginning.