“A republic, if you can keep it,” Benjamin Franklin said of the newly minted constitution of the United States of America. It might sound a crazy thing for a trade newsletter to say with a global trade war about to begin, but the looming tariffs aren’t even the main thing. The main thing is the corruption of the US state by a president and his cronies. The tariffs are hugely illogical and massively destructive. But even if they were postponed — keep an eye on the Federal Register today to confirm they’re coming in tomorrow — this is still an administration prepared to trash norms of democracy and law to use the US’s economic might to pursue vengeful campaigns against enemies real and imagined, foreign and domestic. There are many worse things than tariffs, and I fear we’re seeing them.
Today I’ll underline the deep systemic issue and look at what might stand in the way of Trump’s trade policy: the courts, financial markets, Congress, the Democrats, other countries, the economy and public opinion. SPOILER: not the Democrats. Charted Waters is on gold prices. Last week, before the tariffs were announced, I interviewed World Trade Organization director-general Ngozi Okonjo-Iweala for the Economics Show podcast. Listen to it here or read the transcript here.
Never mind the logic, feel the rage
Whether or not the tariffs come in tomorrow, I really hope (though probably in vain) we’ve heard the last of attempts to rationalise Trump’s trade policy according to some kind of logic, even a logic aimed at a perverse end. Some were reassured by the order he issued on the first day of his presidency, announcing a consultation with government agencies and setting an April deadline. But then he trampled over this process and every voice of caution in the administration. The day after Treasury secretary Scott Bessent let it be known he was pushing for gradualism, Trump announced import taxes would be imposed on the US’s three biggest trading partners in four days’ time.
In Truth Social posts, Trump has mentioned deficits, drugs and crime as reasons to impose tariffs. As has been exhaustively pointed out — Paul Krugman is obviously right here — with regard to Canada in particular this makes no sense at all. Canada runs one of the smallest goods trade surpluses with the US of any big trading partner, and it only runs a surplus at all because the US wants its oil. Very little of the fentanyl coming into the US comes across the Canadian border.
Right, so it’s just a bargaining threat and he wants something from Canada and Mexico? Nope. Trump said so himself on Friday. “It’s not a negotiating tool,” he said. “It’s pure economic.” He wants to lash out and that’s it. There is no logic here. There is rage and vengeance, but no logic.
Meanwhile, Elon Musk, Trump’s chief crony, someone who has no official standing, has seized control of the federal payments system and is planning to use it to impose policy at whim. Over the weekend, he was threatening to shut down payments to a Lutheran charity organisation that runs foster care and helps retirees, because it also has programmes for immigrants.
Now, controlling the public payments system doesn’t mean controlling the dollar. But it’s incredibly disturbing that such a key function of the Treasury could be taken over so easily. And some mistake with the public finances that affects debt management could be catastrophic.
I’m old enough to remember when Bessent was a voice of reason and the representative of Wall Street who would restrain the wilder excesses of the Maga crowd. He has proved powerless to stop not just the tariffs but the penetration of part of the federal plumbing that no one had even considered might be politicised. The Federal Reserve controls monetary policy, but the Treasury controls dollar policy and debt management. What are the odds against Bessent managing to stop anything else that Trump or Musk wants?
The tariffs are terrible in themselves, but far worse for being emblematic of near-untrammelled presidential power. Trump could still hold back or reverse them this week if he gets something he can portray as a victory. But the threat to the global economy and indeed Franklin’s republic won’t go away.
Who’s going to stop him?
OK, so Trump’s tariffs are destructive and break international law the way enraged bulls break crockery. But what can stop him? He clearly doesn’t care about the law for its own sake. And “covenants without the sword are merely words, with no strength to secure a man at all”, as the philosopher Thomas Hobbes had it. Probably no one institution on its own will stop him. But maybe some in combination might work.
The courts
Rating: Unlikely
There are two main possible routes here: a ruling in the Court of International Trade (CIT) that the tariffs are improper, or an injunction against them at a federal district court. Both are long shots, and if they do initially work they will probably get overturned.
Trump is using the International Economic Emergency Powers Act (IEEPA) as legal justification for the tariffs, the successor to the Trading With the Enemy Act (TWEA) that Richard Nixon used for his 10 per cent across-the-board surcharge in 1971.
As it happens, IEEPA was written to circumscribe the broad powers given to the president in TWEA. But the CIT still gives a lot of deference to the president to deal with self-declared emergencies rather than examining his rationale for logic or judging it against reality. Lawrence Friedman of the law firm Barnes Richardson in Chicago, who frequently litigates at the CIT, says: “Even if the President said the IEEPA tariffs were about fentanyl and it really seemed like it was a decision about economics, the court would not get into that”.
Even in a previous case involving a Section 301 tariff — which, as an action initiated by the US trade representative’s office, is supposed to be subject to greater scrutiny than one controlled directly by the president, like IEEPA — Friedman says the court “didn’t get into the President’s tweets about what he said he was doing versus what he was actually doing”.
An affected company claiming the tariffs inflicted “irreparable harm” on it could also seek an injunction at a federal district court to have them suspended. But even a sympathetic federal court would regard it as a big leap to intervene in a presidential decision.
At any rate, both routes would see the case appealed to the Supreme Court, and it’s very hard to see this particular court deciding to take the case and then ruling against Trump.
Congress
Rating: Highly unlikely
There were various grumblings on Capitol Hill during Trump’s first term about exercising congressional restraint over the president on trade. For an actual formal trade deal that requires congressional approval, lawmakers will make substantive interventions as they did in the renegotiation of the North American Free Trade Agreement (Nafta) to create the US Mexico-Canada (USMCA) trade deal.
But in terms of trying to restrain executive presidential powers over trade, those first-term grumblings had no impact. The chief grumbler (Republican senator Pat Toomey of Pennsylvania) has now retired. Congress is more supine than ever and is raising hardly any complaints about the administration’s attempts to arrogate huge amounts of its power. Republican leader of the House of Representatives Mike Johnson says that Trump’s tariffs are justified, even though he claimed a week ago that they wouldn’t happen.
The Democrats
Rating: Gedoudahere
The Democrats are wondering what the hell to do and occasionally posting on Bluesky about tomato prices. Honestly.
The business community
Rating: Unlikely
Giving earnest warnings at this stage looks pretty feeble. The tech industry has obviously been in the tank for Trump, but the traditional business lobbies have offered essentially no resistance to his campaigning or his policies. Ever since Trump started his career in public life a decade ago, many executives seem to have salivated over tax cuts and deregulation and ignored the tariff threat. Traditional big business doesn’t pose a credible threat to him in office and he doesn’t need to get re-elected anyway.
The financial markets and the economy
Rating: Possible
Now you’re talking. I’ve always been a bit suspicious of the idea that Trump’s trade policy is precision-guided by short-term movements in financial markets, though of course he’s generally happy to take credit when stock prices go up. His retreats on trade aggression in his first term — the “phase 1” agreement with China and the soyabean-and-LNG pact with the EU — were driven by his wanting to be a dealmaker rather than what the markets were telling him.
But if there’s a serious stock or bond market drop, or a destabilising surge higher in the dollar, there is likely to be some retreat. As of Trade Secrets “hit send” time, though, it doesn’t look like a massive rout. I’m not convinced a fall of 1.5 per cent in the S&P futures and a rise of less than 1 per cent in the trade-weighted dollar is not remotely going to knock Trump off course.
If anything, a more likely crunch point is the real economy. Canada and Mexico are doing their retaliatory stuff. Along with a splendidly rousing patriotic speech by Prime Minister Justin Trudeau, Canada published a list of tariffs on US imports over the weekend. Ignoring intellectual property is another option, as is going after Musk by putting tariffs on Tesla: retaliation targeting particular US lawmakers, as the Canadian list does, runs into the problems about congressional spinelessness noted above.
Mexican president Claudia Sheinbaum says she will announce her measures later today, and the two leaders spoke with each other over the weekend to give an air of solidarity. China has all sorts of things it can do. Canada and China have also said they will bring cases at the WTO, which won’t change Trump’s mind but will at least reassure other countries that they don’t intend to trash international law just because the US is. Collaborate as much as possible, put up a united front. All good stuff as far as it goes.
But it’s important to recognise that whatever its trading partners do, it’s Trump’s own tariffs which will inflict the most obvious damage on the US economy in the short run. The US imports a lot of industrial inputs from Canada, exactly the kind of thing you hurt your own industry by doing, and in the case of oil and gas it will hit consumers directly.
Trade Secrets favourite Doug Irwin, the world’s greatest authority on US trade tariffs, posted yesterday that his energy supplier had already announced the price of propane will go up. (You rile up Doug over tariffs, you’re in trouble.) Canada adding its own export duties or restrictions to the reduced 10 per cent tariff Trump is putting on its oil could be a very powerful move, though it’s already been mooted and faces predictable internal opposition. Blocks on electricity exports, ditto.
Another short-term crunch point is if the taxes on Mexican and Canadian imports cause the North American auto industry to freeze up, as its executives are warning could happen by the end of the week. This is all too plausible, especially if the tariffs don’t contain provisions to allow cars and parts to shuttle back and forth across the border during construction. Shuttered factories and consignments of half-made cars piling up in storage will be pretty bad optics.
At the end of his first term, those areas supposedly protected by Trump’s tariffs, but actually hurt by them nonetheless, swung towards him in the 2020 election. Voters presumably did not make the connection between the tariffs and their economic difficulties and instead had a vague sense that Trump was fighting for them. But the connection this time between his tariffs and a real, immediate hit to car production or a rise in oil and gas prices will be much more obvious.
Charted waters
Gold prices don’t reliably reflect anything, but to add to the general air of unreality they reached a record high in nominal terms at the end of last week.
Trade links
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The EU has said it will respond firmly if Trump hits its exports with tariffs, though one of the best things it could do is announce it is pushing forward with ratifying the trade deal with Mercosur.
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Trump is apparently less angry with Britain than with everyone else, and the UK appears to be skulking in the background and hoping it doesn’t get hit.
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The FT’s Alphaville does a splendid job of pointing out how Wall Street analysts were far too optimistic about Trump’s tariffs.
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Nikkei Asia on Elon Musk’s links to China.
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The FT editorial board does not favour the tariffs.
Trade Secrets is edited by Harvey Nriapia
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