Last week, Donald Trump threatened 25 percent tariffs on Mexico and Canada. It was an echo of something that had happened just days before, when Trump threatened 25 percent tariffs on Colombia if the country didn’t take its migrants back. In both cases, pundits warned of dire consequences. Your coffee will be unaffordable! You’ll never eat avocado toast again! But Mexico and Canada, like Colombia before them, promised to meet Trump’s demands. The tariff threat on Mexico was put on hold by noon on Monday. Canada’s was rescinded roughly four hours later after it, like Mexico, agreed to police the border and go after drug lords.
These events show that the White House is following a three-pronged tariff strategy laid out by Trump on the campaign trail, and echoed by Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick in their Senate confirmation hearings. “You should think of tariffs three ways,” Bessent said. “One will be for remedying unfair trade practices either in an industry or by a country, like steel and China. Another will be as a revenue source, and third is to use it for negotiations with countries like Mexico for the fentanyl crisis.”
The tariff threats against America’s northern and southern neighbors were designed to exact concessions from these countries to help Trump address the flow of migrants and drugs across the border. Mexico will put thousands of troops at the border. Canada has promised to step up enforcement, too.
Other tariffs are waiting in the wings to address the other two goals: revenue and trade-balancing. Those have different purposes. For example, a universal tariff of around 10 percent would lower the budget deficit and provide hundreds of billions of dollars in new revenue. This revenue could then be used to extend the Tax Cuts and Jobs Act, which expires next year.
Trade-balancing tariffs exist to lower the goods deficit and protect industries that are perennial victims of dumping and overproduction from Asia. In 2017, the goods deficit with Canada was $16.2 billion. It ended 2024 closer to $60 billion. Final figures are due out on Wednesday. The goods deficit with Mexico was $69 billion in 2017. It will break a record in 2024 of around $162 billion.
Trump and his allies want balanced trade. Growing and persistent trade deficits have led us to where we are now. General Motors is charged a tariff of at least 10 percent to import an American-made Corvette to the European Union. We charge EU automakers around 3.4 percent.
“Core inflation did not increase as a result of the 2018 tariffs on Chinese goods.”
Opponents of tariffs continue to predict inflation. But core inflation did not increase as a result of the 2018 tariffs on Chinese goods. Economists at the International Monetary Fund found no noticeable retail price increases from them either. Last year, Treasury Secretary Janet Yellen said that if Biden continued Trump’s tariffs—which he did on May 14—that they would not lead to “any meaningful increase” in consumer prices. A recent report from the Congressional Budget Office on universal tariffs found minimal effects on prices and GDP.
Now that the universal 25 percent tariff has been placed on hold, we could hear about sectoral tariffs to remedy trade imbalances. Mexico’s steel product imports—like steel rebar and conduit used to protect electric wires—have surged 472 percent above levels agreed upon with Washington in 2023. Mexico now accounts for more than 87 percent of US steel conduit imports, undercutting American producers and forcing plant closures.
A 10 percent universal tariff would stop China from exploiting loopholes by shifting production to Southeast Asia or, increasingly, Mexico. Last year, the Coalition for a Prosperous America, where I work as an analyst, released a report showing how a global 10 percent tariff could lead to economic growth, increase real wages, increase employment, and raise additional revenue to lower taxes.
Rep. Jason Smith (R-Mo.) is the Chairman of the House Ways and Means Committee, the most important committee on trade and tax issues in the House. On Sunday, Smith said Trump was “delivering on his promise to take bold action to protect our communities, secure our borders, and bring in additional revenues to the federal government.”
Smith is right. Trump’s economic policies push back against the failed free-trade policies of old. The electorate has spoken, and it wants a wall at the border—not just a physical barrier to keep drugs and illegal migrants out, but a trade barrier that keeps well-paying jobs in.