Washington Wednesday: Trump halts tariffs

LINDSAY MAST, HOST: It’s Wednesday the 5th of February.

Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Lindsay Mast.

NICK EICHER, HOST: And I’m Nick Eicher.

Two days in a row for corrections, Lindsay! Yesterday, I must’ve been in a Texas state of mind, because my brain and my tongue went their separate ways. I misspoke about Governor Sam Brownback’s faithful service ... it was not to Texas as I inexplicably said, but, of course, to Kansas. Brownback served as governor of Kansas, and before that, represented Kansas in the U.S. Senate. I knew this. My mouth, apparently, didn’t get the memo. So, my apologies—and a reminder to double-check the itinerary before sending my words on the next road trip.

MAST: All right, let’s road trip to D.C.: it’s time for Washington Wednesday.

Over the weekend, President Trump ordered the U.S. government to impose tariffs on China, Canada and Mexico.

TRUMP: We've had good relationships. But we have to stop fentanyl from coming in, whether I like somebody or not. And we have to stop the illegal aliens from coming in.

EICHER: The tariffs were set to go into effect on Tuesday…but by Monday evening, Mexico and Canada both made deals with the U.S. to put them on pause for one month.

What did America’s neighbors put on the table to satisfy the dealmaker in chief?

Washington Bureau reporter Leo Briceno has the story.

LEO BRICENO: The tariffs Trump unveiled on Saturday would have slapped goods made in Mexico and Canada with duties of 25%...driving up the price of everything from cars to lumber. Both countries promised to retaliate with their own tariffs on products made in America. But then Trump announced a pause right after Mexico promised to increase its border security measures.

TRUMP: They've agreed to put in 10,000 soldiers permanently, like forever, 10,000 soldiers at their side of the border and stop fentanyl and illegal aliens from coming into our country. They have a big incentive to do.

Meanwhile, Canada has pledged to implement a $1.3 billion border plan, send 10,000 personnel to the border, and create a new Fentanyl Czar position. In return, President Trump granted both countries a one-month pause to the impending tariffs.

What is unclear is how much in the deals is new versus what Mexico and Canada were already working on. Erica York is Vice President of federal tax policy at the Tax Foundation.

YORK: We've seen the deals that have been announced that were already mostly announced back in December.

For example, Mexico had already increased the number of national guard troops stationed at the border. And up north:

YORK: Canada has maybe agreed to create one new position for a border czar. Is the threat of a trade war really what was necessary to get one more incremental change in border policy? Could that have been done with a phone call that doesn’t come with all these economic downsides? I think the tool is not right for the policy goal here.

President Trump has said the tariffs could go into effect in March if Mexico and Canada fail to take more steps to prevent illegal immigration and drug smuggling. So how does this uncertainty around tariffs affect the economy?

Markets took a small hit, but rebounded once the deals were announced. York is watching to see what happens to business investment.

YORK: So, we've got studies from the last time we saw Trump try this back in 2018 and 2019. And while uncertainty isn't as harmful as the actual tariff itself, uncertainty does have an economic cost.

She says that when businesses don’t know what’s going to happen next, they tend to freeze.

YORK: And that's why we see investment fall and GDP fall. Even if the tariffs don't take effect, you can see some of that pause, some of that slowdown. It has a really chilling effect.

Other economists push back.

FERRY: The purpose of the tariff is to handicap the imports to allow the domestic sector to grow. And domestically, you get more jobs, more investment and greater productivity.

That’s Jeff Ferry, chief economist emeritus at the Coalition for A Prosperous America. He supports the use of tariffs not merely as a bargaining chip, but as a tool to force companies with a foot in two worlds to plant themselves squarely in the United States.

FERRY: The problem is we import too much; we consume too much. We need to get that under control. We need our economy to focus more on production and less on consumption.

The challenge is that while the U.S. imports a lot of consumer goods, the majority of imports are goods used for production meaning products labelled “made in America” would also be affected by tariffs.

But some consumers seem willing to watch and see—at least for now. Tyler Evans, a shopper in Pennsylvania, says he’s open to seeing what kind of return the country gets on its gamble.

EVAN: Initially right now, you know Canada and Mexico the tarrifs on them are basically so that they can help us out with the fentanyl and some of the problems that are coming through, but I don’t think the tariffs will be too bad.”

Whether tariffs help more than they hurt, there’s a very real political cost. That’s something that worries at least some Republicans who have spoken out about their disagreements with the administration. Here’s former Senate Majority Leader, Mitch McConnell, on 60 Minutes this week.

MCCONNELL: It will drive the cost of everything up. In other words it will be paid for by American consumers. I mean why would you want to get into a fight with your allies over this?

Economists are divided on what President Trump’s tariff war with China cost the United States during his first term. But Ferry believes it was small enough to calm fears about a new round of tariffs.

FERRY: What we know from studies that were done of the tariffs levied in 2018 and 2019 is that the price increases were very small in specific sectors. A 20% tariff led to about a 2% increase in price in that specific good. And overall inflation did not rise in 2019. It actually fell slightly after Donald Trump levied what were the largest tariff increases since the 1930s.

While trade with Mexico and Canada is in the clear for now, a new tariff war with China got underway yesterday. The U.S. imposed 10% duties on all Chinese goods, and Beijing responded with a 10% tariff on American oil…plus 15% tariffs on coal and natural gas. Reporters asked President Trump if China could make a deal to end the tariffs.

TRUMP: We’ll have some good meetings with China, we have meetings planned, and we'll see what happens. But that was just an opening salvo. If we can't make a deal with China, then the tariffs will be very, very substantial.

Reporting for WORLD, I’m Leo Briceno.

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