Potential Method Behind the Show

Beneath the surface of outlandish claims on allied sovereignty, the incoming administration appears to be hashing out a strategy to kick off President Trump's second term with some big, beautiful tariffs.

The President-elect threatened to use “economic force” to compel Canada to become the 51st US state, claiming that because the United States subsidizes Canada, Washington should claim it as a state. “We basically protect Canada,” Mr. Trump said at a press conference Monday. “We’re spending hundreds of billions a year to take care of Canada. We lose in trade deficits.”

Mr. Trump has said he plans to impose 20 percent tariffs on all goods from Canada and Mexico unless the two countries do more to stem the flow of illegal immigration. The tariffs would violate the US-Mexico-Canada Agreement that was negotiated under Mr. Trump’s first term in office.

During the press conference, Mr. Trump accused Mexico of taking advantage of the United States in trade. “We have a massive deficit with Mexico, and we help Mexico a lot. They’re essentially run by the cartels, and we can’t let that happen.” The president-elect also threatened to impose “high-level” tariffs on Denmark if it does not give Greenland to the United States. Mr. Trump has been arguing that the United States needs Greenland for national security purposes, although he has not elaborated on his reasoning.

Comments that Canada should become the 51st state are no longer a joke and are meant to undermine America’s closest ally, Canada’s finance minister said Wednesday according to an Associated Press news service report. Dominic LeBlanc, the country’s point person for U.S-Canada relations, said Trump was smiling when he first made the comment during a dinner at Mar-a-Lago with Prime Minister Justin Trudeau in late November. “The joke is over,” said LeBlanc. “It’s a way for him, I think, to sow confusion, to agitate people, to create chaos knowing this will never happen.”

IEEPA and Sec 338 for Tariffs

Facing the prospect of another ineffectual Congress, Team Trump is exploring tools that permit unilateral executive action on tariffs and trade.   The transition team has reportedly drafted executive orders  that give Trump wide-ranging authority, including Section 301, Section 338 and Section 122 authorities.  

CNN reported that President-elect Donald Trump is considering declaring a national economic emergency to provide legal justification for a large swath of universal tariffs on allies and adversaries, The declaration would allow Trump to construct a new tariff program by using the International Economic Emergency Powers Act, known as “IEEPA,” which unilaterally authorizes a president to manage imports during a national emergency.

Bloomberg reports Trump’s advisers are evaluating the possibility of using section 338 of US trade law, which allows a president to impose “new or additional duties” against countries deemed to be discriminating against the commerce of the United States. 

Differing Camps

Howard Lutnick, Trump’s nominee for Commerce secretary, and Jamieson Greer, his pick for US Trade Representative, reportedly want to raise tariffs on allies and adversaries alike, while Treasury secretary designee Scott Bessent and incoming National Economic director, Kevin Hassett, are said to harbor more nuanced views on the topic.

One concern is that Bessent and the team at Treasury will be distracted by Capital Markets developments, leaving Lutnick and Greer to conn tariff initiatives as they see fit.

Another cost of Tariffs

In an October piece for the Brookings Institution,  Wendy Edelberg and Maurice Obstfeld highlight a less visible cost of tariffs: near-term chaos as U.S. businesses scramble to renegotiate contracts, reconfigure supply chains, and lobby for exemptions.

"A less visible cost of the tariffs came from the frenzy of appeals for exemption. A bewildering array of politically favored importers won tariff relief from the Trump administration. This process imposed heavy costs on small- and medium-sized enterprises that were ill-equipped to jump through the bureaucratic and political hoops."