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Having failed at and then become bored with a shooting war, Donald Trump is returning to what really gets him up in the morning: an economic war. An “economic D-Day” for Iran was announced at around the same time as retaliatory trade measures against Canada, a demonstration of the fact that to Trump, there’s no functional difference between tariffs and economic sanctions.
I’ve seen some commentators discuss this as a more humanitarian way to handle Iran, as if starving a country’s citizens is somehow preferable to bombing them. But the combination with Canada, as my colleague Bob Kuttner went over yesterday, reveals that this is just bullying with different tools: a spreadsheet instead of a surface-to-air missile.
The nagging problem for any would-be emperor short of Nero is that the ungrateful plebes don’t like the world being created. Administration actions in the past couple of years have been almost deliberately designed to raise prices. Trump is trying to temper that with countermeasures that are breeding anger among his most loyal supporters. When your prime directive is to dominate the world for no ultimate end other than vindictive sadism, you are likely to end up abandoning everything you claimed to stand for in the pursuit.
Administration actions in the past couple of years have been almost deliberately designed to raise prices.
Attempts to break the will of Iran have a millennia-old track record of nearly unbroken failure, including by Trump himself in his first term. And the idea that America has been holding back on Iran and hasn’t brought out the heavy stuff is highly questionable, as the country has been under never-ending sanctions since 1979. But whatever attack the U.S. throws out, the expectation is that Iran’s hard-line leadership will strike back in a way that imposes maximum pressure on the U.S. economy. “Not a single drop of oil will be exported” through the Strait of Hormuz or throughout the Persian Gulf, a senior Iranian official vowed on social media.
Trump is stuck because the country saving him the most from the consequences of the Persian Gulf oil blockade is the same country he wants to sanction: namely, China. Trump’s other favorite enemy has relieved global oil pressures by dramatically reducing imports. But the “D-Day” plan for Iran, known as Operation Economic Outcast, is to penalize with secondary sanctions the countries that do the most business with them, and topping that list of trading partners is China. The first thing China would likely do in response to sanction is restart buying up oil at prior rates, and if Americans don’t like $4-a-gallon gas, wait until they see $6. In truth, we’d be lucky to get away with just a price spike and not crippling shortages.
The first response to this will be lying, as the Trump administration has about oil coming through the strait now. But the absence of physical product cannot be talked away with bluster. Moreover, rising commodity costs from the Hormuz disaster have set in motion an inflationary spiral. The last thing you would want to do is start a different economic spat with another large oil producer. So let me introduce you to Canada.
While the price of gasoline gets the headlines, diesel fuel used by most trucks is above $5.60 a gallon. That is an enormous cost pressure on retailers, farmers who use diesel fuel for harvesting equipment (oh yeah, surprise, it’s harvest season), or really anyone who has to ship anything. And there isn’t much relief available, since the problem is refinery capacity. The “crack spread”—a measure of the difference between the crude oil price and what refiners are selling their product at—has come in at record high levels, in large part due to diminished facilities after the Ukrainian campaign of taking out Russian refineries with drones. Hormuz is an added stressor. Low supplies mean higher prices.
Guess where U.S. refiners get a lot of crude product from? Canada. In fact, 63 percent of the crude imported into the U.S. last year came from the Great White North. And with the Strategic Petroleum Reserve near record lows, the Canadian safety valve looms even larger. It does not matter that the U.S. imports a higher percentage of Canada’s exports if Canada has something Trump is desperate for. That is a huge marker that Canada can throw down at any time. (There’s a smaller version of this in Canadian auto parts, without which most U.S. plants cannot make cars.)
As an example, Midwest refineries in particular process Canadian crude. Fortunately for Trump, there aren’t any critical elections in Wisconsin, Michigan, Ohio, or other states in the region.
Since every farmer and trucker and autoworker is also a consumer along with the rest of us, Trump is trying to fix the consumer price side of things. Because there isn’t much to do on oil yet other than to helplessly yell “Prices Down Now!,” Trump started with beef, announcing the precise opposite of the economic sanctions that have been his main domestic and geopolitical tool in the second term. He announced a tariff exemption for 300,000 metric tons of beef imports, which would be sold at 25 percent below the current market price, per a deal with foreign suppliers.
First of all, this is about 1 percent of the total beef sold in America. Second, it fails to address the meatpacking middlemen who are at the root of the high prices. But the president of the United States making a deal with foreign producers to deliberately undercut U.S. ranchers, at a time when those ranchers are struggling with the New World screwworm that got loose in part thanks to Elon Musk, and cattle herds are at historic lows, was enough to send a key element of Trump’s base into a frenzy. Cattle producers and the Republican lawmakers who represent them sharply criticized the plan. You can find stories of lifelong Republicans finally realizing that they elevated a president who only cares about himself.
So having used sanctions and war drums in ways that have mostly blown back on the American public, Trump is finding that getting out of the predicament will deliver pain to the people he promised to represent. And as prices linger higher, the American consumer can no longer hold out: Retail sales fell in July, partially because Amazon moved up its Prime Day but more likely due to an economy that is, well, out of gas.
It turns out that if you want to have a successful government, you should have the faintest idea about what you’re doing from one moment to the next.
