Trump may not have trade leverage he thinks he has
By Jonathan Levin / Bloomberg Opinion
In Washington, there’s widespread and bipartisan interest in addressing the flawed U.S. trade relationship with China, our chief global rival for economic and military dominance. So it’s weird that President Donald Trump officially started his international trade war of words this week by treating the world’s second-biggest economy with kid gloves. Even more bizarre, Trump aimed his first broadsides at Mexico and Canada, America’s friends and neighbors. Huh?
Both nations are signatories to the United States-Mexico-Canada Trade Agreement, a Trump baby that the president hailed as the “fairest, most balanced and modern trade agreement ever achieved.” And while our North America trade deficits have increased in the years since it went into effect in 2020, partner nations had every intention of revisiting the deal in 2026 to address perceived shortcomings. Trump seems to have singled them out because they’re convenient scapegoats that need the U.S. and are easily bullied. In Trump 1.0, a similar period of Sturm und Drang culminated in the trade deal; allowing him to fulfill a political promise to his supporters, even as he essentially just rebranded and updated the North American Free Trade Agreement, or NAFTA. It is understandable that he might want to try a similar formula again, but he’s playing with fire by using the tactics a second time.
First, America’s North American neighbors are familiar with Trump’s playbook. Canada has already worked up a list of politically sensitive U.S. imports that it could tariff in response, and Bloomberg News reports that it includes such products as Florida orange juice and Kentucky bourbon. Mexico is surely drafting much the same type of list. In the beginning, these tit-for-tats can seem like small fries, yet the broader flow of commerce is anything but insignificant.
Canada and Mexico are America’s two largest foreign markets, amounting to a third of all U.S. exports. As my Bloomberg Opinion colleague Liam Denning has pointed out, the U.S. would have a trade surplus with Canada if it weren’t for oil. Research on retaliatory tariffs during Trump’s first term showed it led to lower U.S. export prices and volumes, lower manufacturing employment, and fewer job openings, according to a recent Goldman Sachs Group Inc. report. Given these are typically targeted at sectors where they can do the most political or economic damage, Mexico and Canada could take aim at U.S.-produced autos, farm products and chemicals, among other things.
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