Is Donald Trump serious about tariffs? This is the question that weighs not only on global markets, but also on the entire economic world.
Conventional wisdom had become that he wasn't really serious, and the key evidence of this was his appointment of hedge fund investor Scott Bessent as Treasury secretary, someone considered a moderate on rights issues. customs compared to others whose names have been floated for the role.
But overnight, the response was quite brutal. Yes, he is serious, and in the most unexpected way. By choosing to target Mexico and Canada as well as China, he confirms threats made during the electoral campaign which seemed the most fanciful.
For starters, he's ready to blow up the Mexico-Canada-America trade deal he signed in his first term on the first day of his second term.
What does a free trade agreement with Trump mean today, if the new White House is ready to impose tariffs on your country?
More to the point, the justification for these measures is not primarily, or even really, related to trade or economic policy. These tariffs are intended to get Mexico, Canada and China to change their policies cracking down on migration and illicit drugs.
Trump uses customs duties as a diplomatic, even coercive, weapon on subjects totally foreign to world trade.
Will the leaders of the G20 countries and their own domestic audiences really turn around to give victory to the new president?
They could choose to wait out the inevitable impact of Trump's 25 percent increase in the cost of two-fifths of U.S. imports on U.S. consumers and inflation.
What is also clear is that Bessent's selection as Treasury secretary will not moderate tariff pressure.
Amid the battle for his nomination, he went out of his way to recognize the power of tariffs as a tool pioneered by Alexander Hamilton himself, the first-ever U.S. Treasury Secretary.
But earlier this year he also suggested that while tariffs could be used tactically, the main tool for rejuvenating America's manufacturing sector would be a cheaper dollar.
Europe and the United Kingdom are spared for the moment. But it is important to reiterate that these measures do not even represent the essence of the tariff policy described by Trump.
He wants to fundamentally change the global economic map and reduce China and Europe's trade surplus with the United States, which he considers a “ripoff of America.”
However, the world today is much more complicated than these binary economic relationships. The United States is undoubtedly powerful enough to begin rebalancing global trade.
However, by pushing things too far, especially with G7 and G20 allies, the United States could find itself a little too isolated.
