Alex Brandon/AP Photo
President-elect Donald Trump speaks at a meeting of the House GOP conference, November 13, 2024, in Washington.
In the past week, Donald Trump has made several extreme tariff threats. He has threatened Mexico and Canada with 25 percent tariffs, warning that the new tariffs would remain in place “until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!” He’s also said he wants to blow up the U.S.-Mexico-Canada free-trade agreement (USMCA), which is scheduled for a review in 2026.
Following the threats, Trump had cordial but inconclusive conversations with both Mexico’s new president Claudia Sheinbaum and Canada’s beleaguered prime minister Justin Trudeau. Trump claimed that Sheinbaum made commitments to secure Mexico’s own southern border to reduce migrant flows, although she and her predecessor had already done so in the late Biden administration and she was just reiterating current policy. But reducing fentanyl production would require a revolutionary crackdown on Mexico’s drug cartels, something that has eluded a succession of Mexican presidents. Canada, meanwhile, is a trivial source of both fentanyl and of illegal border crossings. Trudeau went home from Mar-a-Lago empty-handed.
Next, Trump made a truly far-fetched threat to put a 100 percent tariff on all imports from the so-called BRICS alliance—which includes Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the United Arab Emirates—if they try to move away from the U.S. dollar as the primary trading currency.
In fact, the dollar represents about 58 percent of all reserve currencies, and its dominance as the currency used in trade transactions is slowly dwinding. Third World leaders from time to time have discussed increased use of other currencies. But destroying trade with those nations is not exactly a smart move. This is on top of threats to massively increase tariffs on China, as well as plans to increase tariffs across the board.
Is Trump serious about any of this?
Trump has appointed an all–Wall Street team to key economic posts. His Treasury and commerce secretaries, Scott Bessent and Howard Lutnick, are financial industry billionaires who have previously opposed broad use of the tariff weapon. His chair of the National Economic Council, Kevin Hassett, is a conventional right-wing economist and free-trader.
Lutnick has repeatedly insisted, both on the record and on background, that Trump is proposing tariffs mainly as bargaining leverage. Bessent has also mused about using tariffs like economic sanctions to intimidate countries into compliance on any number of geopolitical issues. Prior to his appointment, Lutnick repeatedly described tariffs as a tax on U.S. consumers.
But Trump has long believed that tariffs are necessary, both to reduce imports and as revenue-raisers, given the massive revenue hole that will be created by his plan to extend and expand his tax cuts. Though Trump will be president, tariffs are genuinely complicated. It will be no mean feat to carry out a tariff diplomacy that is one part leverage and one part deliberate hikes, without spooking either financial markets or allies. This will be all the more difficult when all of the senior economic officials could be working to blunt or undermine Trump’s tariff agenda.
One official who is sympathetic to Trump’s general approach of economic nationalism is Jamieson Greer, whom Trump appointed to head the Office of the U.S. Trade Representative (USTR). Greer was chief of staff to Robert Lighthizer, the top trade official in the first Trump administration. Lighthizer, who developed a close personal relationship with Trump, managed to shape Trump’s crude nationalistic impulses into a coherent trade strategy.
But Greer is more of a technocrat than a grand strategist. He has no personal relationship with Trump, and Trump downgraded USTR by announcing that it would report to the secretary of commerce.
Waiting in the wings is Lighthizer himself. There were early press leaks that Trump was planning to name Lighthizer as some kind of White House trade czar. Then, as Bessent and Lutnick kept bad-mouthing each other, there were reports that Lighthizer could be named secretary of Treasury or commerce. But in the end, Wall Street pressure succeeded in keeping Lighthizer out of a cabinet post.
Trump and Lighthizer, however, remain personally close. My sense is that sooner or later, Trump will find a way to bring Lighthizer into his administration. A senior White House counselor post typically comes without much staff. But in practice, Lighthizer could rely on the USTR staff. He would also be allied with Trump’s designated secretary of state, Marco Rubio, another trade hawk.
Some observers look back at Trump’s first term and conclude that Trump himself was a loose cannon on trade and that Lighthizer succeded in converting the cannon into a useful policy weapon. The Trump-Lighthizer program of targeted tariffs on China did succeed in reducing imports from China and was retained by Biden as part of his strategy of reviving U.S. industry.
But the picture of Lighthizer as a possible source of restraint on Trump is partly misleading, because Lighthizer is also a tariff man. Lighthizer supports tariffs not only as retaliation against predatory foreign trade practices but as a general strategy to reduce America’s chronic trade deficits. This puts him squarely at odds with Wall Street.
The conventional view of tariffs as sales taxes on American consumers is overstated. As this useful explainer piece by Rethink Trade explains, in practice the cost of tariffs is often absorbed by exporters wanting to maintain market share, or by retailers. And of course, if the seller switches to domestic supply, which is the larger objective, there is no tariff.
In sum, Trump’s appointees, like his policies, are a bundle of contraditions. Trade policy is one more arena where these schisms will be laid bare.
