The Far-Reaching Effects of Trump's Tariffs

After promising for many months to impose sweeping sanctions against America’s major trading partners, President Trump is wasting little time since his inauguration to launch the first salvo in a budding trade war with Canada, Mexico, and China.  The tariffs are far broader than anticipated, and they will threaten the smooth functioning of the world economic order that is predicated on free trade and open markets.  The size and scope of the tariffs have caught many economists, traders, and analysts by surprise, and Canada and Mexico have already promised severe retaliatory responses.  China’s response has been a bit more vague, but they too will implement strong counter-measures to protect their perceived interests.

It was only a week ago that Trump promised to slap tariffs on Colombia, another strong US ally, in response to Colombia’s refusal to accept a planeload of deported illegal aliens.   After negotiating an arrangement with the Colombian government to accept the illegal aliens, Trump dropped the threat of the tariffs.  It was due to the resolution of these negotiations that many market participants thought that Trump was simply using the threat of sanctions as a negotiating ploy with Canada and Mexico, and accordingly, would not proceed with their implementation.  We have now learned otherwise.