- President Donald Trump on Thursday again delayed enforcing tariffs on Canada and Mexico by a month.
- The president’s flip-flopping on international trade has caused price hikes and diplomatic friction.
- Supply chain scholars say economic uncertainty is a feature of Trump’s trade policy, not a bug.
President Donald Trump announced on Thursday that his 25% tariffs on goods from Mexico and Canada would be delayed another month, once again backtracking on his aggressive international trade policy proposals.
Trump’s repeated reversals are key to his economic strategy, though they may not pay off in the long term as they erode relationships with the nation’s allies, supply chain and conflict resolution scholars told Business Insider.
The continued flip-flopping has left the US economy with a sense of whiplash. Businesses and markets have to keep up with the latest policies amid a budding trade war, while uncertainty in the world’s biggest economy makes waves across the rest of the globe.
The tariff tension between the North American trade partners is creating diplomatic friction between the US and its allies, in addition to driving cross-industry cost increases and consumer price hikes, Nick Vyas, the founding director of the University of Southern California’s Randall R. Kendrick Global Supply Chain Institute, told Business Insider.
He said that’s a feature of Trump’s trade policy, not a bug.
“Everyone has to understand that you’re on the long ride here with this jolt, this is not just turbulence for a few seconds,” Vyas said.
Since Trump prides himself on being a master dealmaker, Vyas said the president seems to believe he’ll be able to achieve his policy goals by increasing the pressure on Canada and Mexico — and that means keeping each country’s leader off balance at the negotiating table.
“It all fits into his America First strategy,” Vyas said. “But I think we’re going to have to make sure that we don’t alienate our allies.”
While his tariff threats may be an attempt to strengthen the US’ economic standing, Trump’s repeated backtracking may not help the implementation of his other policy priorities in the long term, Andrea Schneider, the director of the Kukin Program for Conflict Resolution at the Cardozo School of Law, told BI.
“When you threaten and then continue to walk things back, obviously, the threat loses its power,” Schneider said. “Whatever strategy message we’re trying to send is confusing and is less strong because of it.”
Schneider said the mixed signals and confusing trade policies don’t give businesses the predictability needed to make decisions like hiring, expanding research and development, or developing a new product. These factors increase market volatility, making consumers unhappy, and can drive social unrest as prices of everyday goods continue to rise.
“The world is watching. Markets are watching,” she said. “The chaos and unpredictability might, in certain instances, make sense in diplomatic relationships or one-on-one negotiations. But it doesn’t work in a situation like this, where every US business is trying to figure out what to do tomorrow and can’t predict what the policy will be.”
A game of tariff brinkmanship
Thursday’s announcement is the second monthlong delay Trump has imposed since he signed executive orders calling for sweeping tariffs in February. The duties — including 25% tariffs on Canadian and Mexican goods and 10% on Chinese goods — went into effect on Tuesday. Energy products from Canada were also subjected to a separate 10% tariff.
China and Canada retaliated immediately on Tuesday with tariffs on US products. Mexico said it would follow suit on Sunday, a move that Gladys McCormick, the Moskowitz endowed chair in Mexico-US relations at Syracuse University, told BI was likely in anticipation of an enforcement delay.
“To be honest with you, I wasn’t surprised, nor do I think Mexicans were surprised,” McCormick said. “That lag, in essence, gives the Trump administration an off-ramp to really kind of think through how catastrophically devastating this would be to both countries, not just Mexico.”
Trump is playing a game of brinkmanship, or pushing a risky situation to the brink of disaster before backing down in the hopes of a positive outcome, which has been an “intrinsic part of the Trump playbook,” McCormick said.
“If and when Trump does follow through with tariffs, it’s not going to be this sort of wholesale 25% on everything. Rather, they will ultimately end up taking a selective approach to certain industries or certain sectors,” McCormick said. “For example, I think that manufacturing, and then especially the automobile industry, would be so severely hard hit on both sides of the border that that’s going to be off the table.”
‘This is very much about political theater’
In the meantime, the US and its major trading partners are stuck in a battle of wills instigated by Trump. The president has repeatedly said the duties will help drive down immigration and fentanyl flowing across US borders. However, Christopher Tang, a professor at the University of California, Los Angeles and scholar of global supply chain management, told BI he isn’t convinced that’s Trump’s primary goal.
“Trump claimed that this tariff is a penalty for Canada and Mexico for not doing enough to curb illegal immigration and illegal drug trade,” Tang said. However, he added that the rates of crossings for both migrants and drugs are down at both borders, so he thinks that rationale is “an excuse.”
Instead, Tang said he believes Trump’s tariffs are more likely an attempt to “close the backdoor” for Chinese products using Mexico as a transition point to avoid tariffs. China has used Mexico as a workaround to avoid tariffs by shipping the parts or semi-finished products — like furniture — to Mexico, performing final assembly in Mexico, and then shipping the finished goods to the US without paying its own tariffs, Tang said.
“If the goal is to close the backdoor for importing Chinese goods without paying tariffs, it can be effective, but the implementation can be complicated due to the mass volume and limited manpower,” Tang said. “If the goal is to nudge Canada and Mexico to expand its control of illegal immigrants and illegal drugs, only time will tell.”
Mexico, in particular, has already spent years addressing both problems by sending its National Guard to the Mexican-US border to cut off immigrants and working to shutter fentanyl labs in the nation, McCormick, the Syracuse University professor, said. She added that the demands from the Trump administration have been “vague,” which has been “worrisome” to those who wonder when enough will be enough.
“The absence of metrics suggests that this is not about fentanyl and it’s not about immigration. This is very much about political theater,” McCormick said.