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The Art of the Tariff: Trump’s latest threat is right out of his negotiating playbook

The Art of the Tariff: Trump’s latest threat is right out of his negotiating playbook
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Donald Trump in a MAGA hat
 

  • During his first term, Trump threatened tariffs while renegotiating trade with Mexico and Canada.
  • Now, his promise to slap a 25% tariff on all imports from the countries strikes a similar chord.
  • Scott Bessent, Trump’s pick for Treasury secretary, has called tariffs a “negotiating tool.”

President-elect Donald Trump helped pen business advice in his 1987 book “The Art of the Deal” that has echoed throughout his posture on tariffs, from his first term to today: “Leverage: don’t make deals without it.”

On Monday evening, Trump announced that he plans to use executive orders to impose a 25% tariff on all goods from Mexico and Canada on his first day in office. He said in a post on Truth Social that the tariffs “will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!”

Though Trump promised to implement harsh tariffs throughout the campaign, actions from his first term indicate that the sweeping threat — which has reverberated throughout global markets and vulnerable industries like auto — might be a version of Trump’s long-favored “leverage.”

In June of 2019, Trump threatened tariffs against Mexico if the country didn’t alter its immigration system, which it eventually did.

“That was in a sense analogous to what he’s doing now outside of economics, when he’s talking about fentanyl and he’s demanding more control of people coming to the border,” Robert Lawrence, a professor of international trade and investment and a senior fellow at the Peterson Institute for International Economics, told Business Insider. “Were the tariffs the reason the Mexicans became more compliant? I don’t know, but he certainly did use that as a threat.”

Lawrence added that the threat of tariffs is effective rhetorically right now, particularly for people in the European Union who doubted Trump’s willingness to follow through on his word.

Trump also used tariffs as “leverage” when renegotiating the North American Free Trade agreement, Mark Blyth, a political economist at Brown University, told BI.

Blyth said that Trump is notably unpredictable and that, until he steps into the White House again on January 20, people can only speculate about what promises he’ll follow through on.

“We’re all shadow boxing. We’re jumping at the show: ‘Look, he’s going to do this! He says he’s going to do this!'” Blyth said. “He’s still got to get in, he’s still got to form his Cabinet. He’s got to put in these people and then he can do stuff.”

According to a report from the Brookings Institute, tariffs set important context for the NAFTA renegotiations, and Mexico and Canada likely wouldn’t have come to the negotiating table without them. But the report concludes that using tariffs-as-leverage do not necessarily result in significantly more favorable trade relations, though they do succeed in getting “other countries’ attention.”

While financial analysts are taking Trump’s threats seriously, some banking leaders seem to think that Trump’s most recent tariff threat is a continuation of his prior negotiation tactic.

“This is President Trump’s negotiating style: step one, punch in the face, step two, let’s negotiate,” Kieran Calder, the head of equity research for Asia at Union Bancaire Privée, said, according to Bloomberg.

In a report published Tuesday morning, UBS said that “the timing and narrow focus of the latest threat suggest scope for negotiation.” By focusing on non-trade issues — immigration and drugs — Trump is suggesting that the tariffs are transactional, focused more on gaining the upper hand than implementing long-term tariffs, the authors argue.

The global head for emerging markets strategy at Citi Bank, Luis Costa, spoke on Squawk Box Europe on Tuesday morning to make a similar point in relation to Mexico. “To us, it is absolutely obvious that the Trump administration will use tariffs as one important lever to negotiate with Sheinbaum’s government,” he said. “It is probably something that is more about negotiation rather than about imposing tariffs.”

And Trump’s own nominee for Treasury secretary, Scott Bessent, published an opinion piece earlier this month arguing that the president-elect uses “tariffs as a negotiating tool with our trading partners.”

A spokesperson from the Trump transition team told BI in a statement that “in his first term, President Trump instituted tariffs against China that created jobs, spurred investment, and resulted in no inflation.”

Read the original article on Business Insider



This article was originally published by Alice Tecotzky at All Content from Business Insider – Read this article and more at (https://www.businessinsider.com/trump-tariffs-mexico-canada-negotiate-bessent-threat-2024-11).

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