Is Donald Trump serious about tariffs? This has been the question hanging over not just world markets but the whole world of economics.
The popular wisdom had become that he wasn’t really that serious, and the key bit of evidence for that was his nomination of hedge fund investor Scott Bessent as his Treasury Secretary, someone seen as a moderate when it came to tariffs compared with others whose names were floated for the role.
The answer overnight, though, was pretty brutal. Yes, he is serious, and in the most unexpected way. By choosing to target Mexico and Canada as well as China, he is confirming threats made on the campaign trail that appeared the most fanciful.
For starters he is willing to blow up the Mexico-Canada-America trade deal that he signed in his first term on day one of his second term.
What does a Trump free trade deal even mean now, if the new White House is willing to put tariffs on your country anyway?
And importantly, the rationale for these moves is not mainly or even much about trade or economic policy. These tariffs are about getting Mexico, Canada and China to alter their policies on crackdowns over migration and illicit drugs.
Trump is using tariffs as a weapon of diplomacy, even coercion, on topics entirely unrelated to global trade.
Are the leaders of G20 nations with their own domestic audiences really going to roll over in order to give the new president a win?
They could choose to wait out the inevitable impact of Trump applying a 25% increase on the cost of two-fifths of US imports on US consumers and inflation.
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