It’s not the economy, stupid. That’s not why Trump tariffs the world
President Donald Trump, centre, salutes while inspecting the troops during the 60th presidential inauguration in Emancipation Hall of the U.S. Capitol, in Washington, on Jan. 20.ALEXANDER DRAGO/REUTERS
Brandon Schaufele is an associate professor of business, economics and public policy at Ivey Business School.
Donald Trump’s so-called Liberation Day dawned with a barrage of tariffs aimed at restructuring global trade. In a dramatic Rose Garden announcement last week, the U.S. President issued a “declaration of economic independence,” unveiling a 10-per-cent blanket tariff on all imports and additional levies on dozens of countries, including China, the EU and Japan. Mercifully, Canada and Mexico were largely spared, at least for the moment.
Economists of all stripes have sounded the alarm about the global fallout from this new trade regime. The tariffs are expected to create shock waves for consumer prices and disrupt supply chains and stock markets while risking global economic contraction. For a supposedly pro-business president, it all seems senseless and doomed to hurt the U.S. economy.
It is, after all, dangerous to attribute too much forethought to Trumpian policy. As an economist, I strongly disagree with the merit and execution of this tariff strategy.
Yet, it is still possible to acknowledge some logic in the administration’s strategy. Focusing on the immediate economic effects might miss the broader strategy behind Mr. Trump’s trade offensive. Beneath the rhetoric on trade deficits may lie a larger gambit – one aimed at shoring up U.S. national security. Canadian policy makers should realize this when dealing with the Trump administration.
If we listen carefully to what they say, it’s clear that Mr. Trump – and the economists advising him – see tariffs not merely as tools to protect industries, but as leverage to redistribute the costs of U.S. global leadership. In their view, America’s military and security commitments have become a global public good akin to policing – a costly service the U.S. provides, and for which its allies and trading partners have been “free riders.”
To understand this, consider an analogy. Imagine a large city surrounded by a series of smaller neighbouring communities. Typically, the city maintains extensive public amenities – libraries, parks, swimming pools – funded by that city’s taxpayers. Residents of the neighbouring towns use the city’s amenities because they enhance everyone’s quality of life. However, it is common for the city’s residents to bear the costs of the amenities, while those in the smaller towns enjoy lower property taxes.
In Mr. Trump’s Washington, the U.S. is the big city. For decades it has provided global security, stable trade routes and a reserve currency. Allies and trading partners – the neighbouring towns – have benefited from this U.S.-led order, whether by underfunding their own defence or running export-led economies under the U.S. security umbrella. Mr. Trump’s solution to free-riding is to use America’s economic power to make others indirectly pay for U.S. security. Tariffs, in this world view, are less about balancing trade than about paying a bill for the U.S. defence umbrella.
If this sounds a little too fanciful, it’s worth reading Stephen Miran’s A User’s Guide to Restructuring the Global Trading System. Mr. Miran – an economist currently serving as chair of the Council of Economic Advisers – argues that U.S. trade and currency policy should serve national security ends. He writes that the U.S. “security umbrella should be financed by the beneficiaries” and that “national security and trade are joined at the hip.” Mr. Trump himself has long linked trade and security. He complains that allies “rip us off” on trade and defence and has openly threatened to withhold military protection from countries that don’t pay up.
Additional evidence for this geoeconomic interpretation was on display in the “Houthi small group” text messages, where National Security Advisor Mike Waltz states, “Per the president’s request we are working with DOD and State to determine how to compile the cost associated [with the bombing] and levy them on the Europeans.”
Seen from this perspective, “Liberation Day” was never just about economics.
The United States’ defence budget is nearly US$1-trillion. And no country, including the world’s economic engine, can perpetually run deficits exceeding 6 per cent of GDP. By tying tariff relief to security co-operation, the White House is sending a message: If you enjoy the protection of Pax Americana, you must contribute to its upkeep.
Canada was lucky to be spared on Liberation Day. But the true test will be how Canada responds to the underlying message. Ottawa could simply breathe a sigh of relief and hope for the best. Alternatively, it could acknowledge that economic and security policies are no longer separate realms. This exposes an uncomfortable truth: the U.S. is effectively monetizing its role as global peacekeeper, and even friends like Canada are expected to pay tribute. In the new era of transactional geopolitics, nobody rides for free.
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