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GELFAND’S WORLD - Donald Trump jumped to conclusions about a deadly airplane crash and went public with his accusations, contravening decades of tradition adopted by the NTSB and foreign governments. And this was probably only the second worst thing he did this week.
It came in far behind his latest attempt to destroy the world order. In this case it was our economic system.
Let's put it this way. In Economics 1, you learn that the world spent a couple of centuries learning to tear down its tariff barriers so that trade could flourish. Much of the revolution began with Adam Smith, who argued in favor of free trade, and against what is now referred to as mercantilism. What's worth remembering is that Adam Smith published The Wealth of Nations in 1776.
We've known -- at least in theory -- that free trade and free markets are enormously productive, whereas mercantilism leads to lowered prosperity and petty squabbles between countries. The other thing to remember is that it's been a battle that lasted a couple of centuries. That struggle finally led to a close approximation to free trade among many countries.
Interestingly, one of the major principles adopted by the founders in the U.S. Constitution is that states cannot enact tariffs against goods coming from other states. Thus the United States became a free trade bloc only a few years after the publication of Smith's book and has generally remained that way ever since. It is true that the U.S. collected tariffs on foreign goods and used the proceeds of those tariffs to pay for a significant part of federal expenses. But times change, and the U.S. enacted the income tax to pay for its costs while encouraging international trade. As recently as a few years ago, the U.S. agreed to a trade agreement with South Korea, demonstrating that the world economic system has a ways to go but knows how to make progress.
One trading bloc that you would not expect to be at risk is the land mass of North America. With long borders and populations which enjoy mixing and touring and trading, there should be little reason to take Canada, the United States, and Mexico back to the first part of the 1700s.
But somehow, over the weekend, such was decreed. By declaring tariffs of 25% against Canada, Mexico, and China, Donald Trump has shown that he doesn't begin to understand the thought of Adam Smith or David Ricardo. Hell, he doesn't even understand what Paul Samuelson's textbook says.
Still, the president of Mexico seems to have negotiated some kind of last-minute settlement with Trump. As of this writing, the U.S. will hold off on tariffs against Mexico for a month. In return, Mexico offers to send troops to the border to oppose the drug trade.
Later Revision: As of about 3 PM Monday, Trump has now caved on Canada. As one pundit put it, Canada is offering some security theater (that had already been agreed to with Joe Biden last year) and in exchange, Trump is also putting off the Canadian tariff for a month. The agreed to action is for Canada to move about ten thousand people to cover the border and suppress fentanyl smuggling.
Let me offer one thought that was given to me by a colleague. We'll start our discussion with the meeting between California leaders and Donald Trump after the recent fires. Trump was going on about how the burned-out homeowners should be allowed to start rebuilding immediately, and not have to endure any waiting time. In other words, under the Trump system, there should be no postmortem regarding the fires, no new rules to protect new construction from the next fire, and so on. So what did our mayor do? The answer is that she nodded and smiled, assured Trump that there would be no such limits, and basically lied her head off. Basically, my colleague points out, the mayor treated Donald Trump like a mommie dealing with a difficult toddler in the supermarket.
Trump, it would appear, has a mommie issue, and Bass handled him accordingly.
It may very well be that the new president of Mexico did much the same. Here's a guy who agreed to a trade treaty with Mexico in his previous term, and now, without so much as a private diplomatic approach, is throwing a tantrum which threatens to push the world into another recession. So what did she do? She made promises which she might or might not keep, and the toddler stopped kicking and screaming.
The problem is that child psychology only gets you so far in dealing with the misapplied powers of the U.S. presidency.
In terms of our economic vitality and continued prosperity, starting a trade war with our best trading partners is daft, loony, insane, and irrational. Or put it this way: Kamala Harris was right in saying that the Trump proposal is equivalent to adding a national sales tax onto the backs of our citizens.
It's also profoundly chaos inducing. It's not too crazy to suggest that every Donald Trump presidential term results in a run on toilet paper and a recession. Maybe we'll get lucky about the toilet paper this time around, but a brief review of the industry shows that our secondary producers are Canada and China. The other thing to remember is that whether it is gasoline or toilet paper, the nervous stockpiling of above-average amounts automatically leads to national shortages. When people tried to keep their gas tanks in the top quarter of a tank back in 1974, there just wasn't enough to go around and those gas lines developed.
Maple syrup isn't quite at the critical level of gasoline, but if you are in the construction business, lumber is. If you are in any business at all, then oil is the ultimate critical thing.
The international stock exchanges have already reacted to the Trump tariffs. They are doing what all stock markets do, which is to react to the perceived future. People with educated, rational approaches to economics see the Trump induced trade war as recessionary, just as the Ronald Reagan era conservatives traced the Great Depression back to the negative effects of the Smoot-Hawley tariff.
What have the markets done so far? In a word (or actually a phrase) they have split the difference. The Asian markets dropped a point or two overnight, and the American exchanges showed some similar action. What this seems to be saying is that for now, the vast majority of investment money is treating the Trump tariffs as a bluff.
Later comment: Well, the markets seem to have had Trump's number. Resolute isn't the word for this guy when it comes to dealing with grownups.
On the other hand, there is a not-unrealistic expectation that the Trump tariffs, if actually enacted and applied, will induce a recession, so the markets are down a bit in anticipation.
Note that no rational leader would engage in such a ploy, since the risks are high, and the expected results are themselves not that wonderful. On the other hand, there is a possible explanation for what Trump is doing, as explained by Kevin Drum. In essence, says Drum, President Trump is simply trying to collect government revenue through tariffs on trade in order to pay for future tax cuts and the extension of the previous cuts.
Let's let Kevin explain. This is taken from his Feb 1, 2025 piece:
" Trump doesn't want anything. He just wants the tariffs. He's convinced they can raise vast sums of money that will let him enact tax cuts later this year, and he likes that. That's it. There's no theory of the case. There's no underlying rationale. There's no 4-D chess. He just wants the money, and he either doesn't know or doesn't care that he's raising it from Americans, not foreigners.
"And why Canada, Mexico, and China? For the same reason Willie Sutton robbed banks: because that's where the money is. Those three countries account for nearly half of all US imports, so they're the ones that got held up.There's no need to overthink this."
I think Kevin has something here. The only other explanation is that Trump is so driven by his revenge fantasies that he is driven to acts of destruction. But if there was actually some rational reason (although slimy and evil), then why did Trump cave so quickly and for so little in return? Let's just note that the world's leaders have now had a powerful lesson in how to deal with Trump's threats and extortion, and that lesson is to just say No.
It's interesting how Canada and Mexico not only responded strongly and immediately to the Trump threats, they seem to have worked together effectively. You can read a summary of their responses here. In terms of Monday morning's capitulation by Trump over the Mexico tariffs, it is amusing to regard Mexico and Canada as playing the good cop and bad cop roles respectively. The president of Mexico was able to play the role of the understanding mommie who has to deal with a problem child. The Canadians are playing a rather different role -- perhaps the authoritarian father.
It's unfortunate that the world needs to bone up on child psychology because the American voters have put a difficult infant in office. What is particularly unfortunate is that under President Donald Trump, the word of the U.S. is no longer to be trusted. Trade treaties with Canada and Mexico? The Paris agreement over climate change? The deal to lessen the level of Iranian nuclear development? Trump thinks that he can quit any agreement we made, based on his personal prejudices.
(Bob Gelfand writes on science, culture, and politics for CityWatch. He can be reached at [email protected])
