When appropriately imposed, tariffs are an effective way to maintain a trade balance. That’s their primary purpose.

Governments may opt to impose tariffs for a multitude of reasons, including protecting nascent industries, firewalling against imports made with cheap labor, fortifying national defense programs, supporting domestic employment opportunities, combating aggressive trade policies, and protecting the environment.

They are most effective when used judiciously and in a targeted way. When used punitively, they often cause tit-for-tat responses escalating into a trade war.

However, in Mr. Trump’s world, everyone else has to obey the rules; he can change them anytime.

Joe Broadmeadow

When the administration announces that some companies have plans to build new operations in the US and links them to these tariffs, it obscures an important point.

Major industries, such as steel and auto manufacturers, operate on long-term plans. They have to because building a significant production facility can take years. If they decide to locate a plant in the US, they have to be comfortable that the business conditions favorable to such an investment will be in place.

(Since many of these may not even be in operation until after Mr. Trump leaves office, if ever, perhaps that is the stability they see in the future.)

The first Trump administration abandoned NAFTA and replaced it with the United States-Mexico-Canada Agreement (USMCA). Despite claims to the contrary, many of the NAFTA provisions remained in effect, along with some new provisions.

https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/agreement-between

So the very actions Mr. Trump is complaining about by Canada and Mexico are the things he negotiated.  However, in Mr. Trump’s world, everyone else has to obey the rules; he can change them anytime.

Ford, GM, and others designed a business model after July 2020 that considered the provisions of USCMA. They adjusted their production facilities to best take advantage of the provisions. 

By changing the rules, Mr. Trump has not created an incentive to move all production into the US. He has created uncertainty; nothing is more anti-development or anti-investment than uncertainty.

Another consideration is this “return of American manufacturing.” Of course, encouraging a level playing field for American manufacturers to compete with China, India, and others is a good thing. But tariffs can only go so far (when used properly and not punitively) to offset the realities of labor cost differences.

We are a service-based economy, no longer dominated by manufacturing. Last month, the Labor Department announced the creation of 155,000 jobs, more than 130,000 of which were in the service sector.

Tariffs have their place but they are not a weapon to bend others to our will. They can work both ways. And while some companies may absorb the cost initially and not raise prices, the reality of pressure for having a healthy profit margin and happy investors will always overcome any short-term resistance to price increases.