Before getting to this week’s topic, a brief note. It now appears that the “reciprocal” tariffs being planned for April 2 will involve a single tariff number for each country rather than separate numbers for each tariff line in each country. That reduces the administrative burden from 2.6 million tariff lines to approximately 200—one for each country—but it still leaves Customs and Border Protection with the task of definitively determining country of origin for every product entering the United States. It will also lead to a surge of customs fraud cases as importers scramble to classify their goods as products of low tariff countries—whether they actually are or not. Of course, a single country tariff is also an arbitrary approach that belies the concept of reciprocity and increases the harm that will be done to consumers as products that enjoyed duty-free status in their home countries will now be subject to whatever tariff the president decides is the right one. Of course, whether any of that happens will be uncertain up to midnight April 1. As last week demonstrated, Trump loves the rollercoaster ride of unpredictability—and the financial markets are, in turn, showing how much they prefer stability.
On this week’s topic, I was talking recently with a colleague from a different think tank who mentioned that they were considering hosting a conference on economic coercion that would focus on China’s use of coercive tactics. It occurred to both of us, however, that if the conference is held several months from now, it could just as easily be about the United States because it is adopting Chinese methods.
The record of Chinese economic coercion is long and clear. CSIS has published a study of it, along with suggestions on how countries can prepare for it. Targets in the past have included Australia, Lithuania, Mongolia, Norway, South Korea, and Taiwan. Some of these involved economic disagreements, but most did not. Norway, for example, was attacked because it awarded the Nobel Peace Prize to Chinese dissident Liu Xiaobo. Lithuania allowed Taiwan to open a representative office in Vilnius. Chinese tactics usually involve halting purchases from the target country, limiting exports of critical items, harassing their companies in China, and threatening to punish other countries if they do business with the target. One distinction between Chinese and U.S. behavior is that China’s coercion was, in the minds of its leaders, provoked. The target country did something that offended China, which made the subsequent coercion the target’s fault, not China’s.
In the U.S. case, the actions appear related to longstanding grievances Trump has against the other country or its leader or to his vision of an imperialist United States expanding its geographic influence. The U.S. targets, unlike Lithuania or Norway, have not taken provocative actions. They simply exist and are in the way of Trump’s ambitions. So, Trump is threatening Denmark because of Greenland, Panama because of the canal, Colombia over acceptance of deportees, Canada and Mexico over fentanyl and migrants (and because he doesn’t like Prime Minister Justin Trudeau), Europe over a variety of longstanding sins, including the very existence of the European Union, which he seems to regard as a deliberately intended threat to the United States. The other difference between the United States and China is that Trump uses only one tool—tariffs—while China uses many.
It is too soon to comment on the immediate results of U.S. economic coercion since most of the threats have yet to be turned into action, but the constant stream of threats, actions, reversal of actions, declaration of exemptions, and more threats has left financial markets and manufacturers dazed and confused. Their natural reaction will be to pause—to delay making new investment decisions until things clarify—and meanwhile scramble to adjust their supply chains in ways that don’t require large capital investments. That will be true of domestic manufacturers, most of whom rely on foreign parts and components, and for potential foreign investors now unsure of the investment climate in a country whose government has thrown out the rule of law and abandoned policy stability. There is a small parade of executives announcing new investments, each providing an opportunity for Trump to brag, but if history is any guide, many of them will either not happen or turn out to be less than advertised.
The impact on countries, however, is clear and predictable—the United States is squandering its soft power and showing the world that it will act like China—ignoring global trade rules and bullying smaller countries to force them to line up with our political and economic agenda. Trump may believe that it is better to be feared than admired, but that is not true for countries. The bellwether will be Europe, which feels, correctly, that it is being abandoned—and the tariffs have not even begun. Watch for signs that Europe is moving closer to China economically, that “derisking” refers to the United States, not China, and suggestions that perhaps it is time for a G6 that excludes the United States rather than a G7. That would be tragic—for them and for us—but it appears to be where we are heading.
William Reinsch is senior adviser for the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
