
Di Michael Vadon
New trade penalties that President Donald Trump intends to implement on Saturday against Canada, Mexico, and China signify a bold initial action towards America’s three primary trading partners. However, this approach carries the potential for increased inflation and could disrupt the global economy.
In Trump’s perspective, the imposition of 25 percent tariffs on the two North American allies, along with a 10 percent tax on imports from the United States’ foremost economic competitor, serves as a means for the United States to leverage its financial power to influence global dynamics.
“You see the power of the tariff,” Trump remarked to reporters on Friday. “Nobody can compete with us because we have by far the biggest piggy bank.”
The Republican president is undertaking a significant political gamble, believing that his actions will not exacerbate inflation, trigger financial repercussions that could destabilize the global economy, or incite a backlash from voters. According to AP VoteCast, a comprehensive survey of the electorate from the previous year’s election, public opinion in the United States is divided regarding support for tariffs. There is a possibility that the tariffs may be temporary if Canada and Mexico can negotiate an agreement with Trump to more effectively tackle illegal immigration and fentanyl trafficking. Additionally, Trump’s actions against China are linked to the fentanyl issue and are in addition to the existing import duties.
Trump is fulfilling commitments made during his 2024 presidential campaign, which are central to his economic and national security strategy. Although allies of Trump have downplayed the potential impact of increased import taxes as mere negotiation tactics, the president is preparing to implement additional tariffs, indicating that such measures will remain a significant aspect of his second term. On Friday, he highlighted imported computer chips, steel, oil, natural gas, copper, pharmaceutical products, and imports from the European Union, actions that could position the United States in opposition to a considerable portion of the global economy.
The announcement prompted an immediate reaction from financial markets, resulting in a decline in the S&P 500 stock index. The potential effects of these tariffs on business investments, which Trump has claimed would increase due to his proposals to lower corporate tax rates and eliminate regulations, remain uncertain. Typically, tariffs lead to higher costs for consumers and businesses by increasing the expense of importing foreign goods.
Numerous voters supported Trump in the November election, believing he would be more effective in managing the inflation that surged during Democratic President Joe Biden’s administration. However, inflation expectations are rising, as indicated by the University of Michigan’s consumer sentiment index, where respondents anticipate a price increase of 3.3 percent, surpassing the actual annual inflation rate of 2.9 percent recorded in December’s consumer price index.
Trump has advocated for the government to increase its revenue through tariffs, reminiscent of the period before the income tax was incorporated into the Constitution in 1913. He asserts, despite contrary economic evidence, that the United States was at its peak wealth during the 1890s under President William McKinley. “We were the richest country in the world,” Trump stated on Friday. “We were a tariff country.”
Aiming to reshape America based on McKinley’s model, Trump is currently undertaking a real-time experiment that challenges the economists’ warnings that tariffs lead to higher prices. While the tariffs implemented during his first term did not significantly elevate overall inflation, he is now considering tariffs on a much larger scale, which could result in increased prices if these policies are sustained.
Trump has affectionately referred to McKinley, an Ohioan who served as president in 1896 and 1900, as the “tariff sheriff.” Brad Setser, a senior fellow at the Council on Foreign Relations, remarked on the social media platform X that if the tariffs are maintained, they would represent a substantial shock—far exceeding the cumulative impact of all the trade actions taken during Trump’s first term.