RPT-BREAKINGVIEWS-Colombia spat is pyrrhic start to Trump trade wars

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Gabriel Rubin

WASHINGTON, Jan 27 (Reuters Breakingviews) - The administration of U.S. President Donald Trump aimed a weapon at Colombia’s economy and declared victory without firing a shot. The question is how many times it can do so elsewhere before it has to pull the trigger. For now, U.S. plans to use tariffs as a negotiating tactic to achieve its policy aims, whether related to trade or not, remain hazy. But leverage only works if trading partners sincerely believe Trump is willing to go through with his threats, no matter the risk of damage to U.S. industry.

The first major test will come this week. On his first day in office, Trump said that he is preparing to levy 25% tariffs on Mexico and Canada on Feb. 1, this upcoming Saturday, barring some kind of compromise on border security and broad trade terms. Investors and analysts seem skeptical: Goldman Sachs in a note last week put the likelihood of tariffs arriving on schedule at just 20%. The tussle with Colombia this past weekend might therefore seem a dry run to prove Trump’s resolve. A dispute erupted after the country turned away military aircraft carrying deportees, with the White House escalating to threats of immediate 25% tariffs on Colombian exports, rising to 50% unless flights resumed.

After assurances regarding the treatment of deportees, the two sides reached agreement, with the administration claiming victory. Even here, though, it’s not really clear who had more to lose from targeting a close regional ally with which the U.S. runs a trade surplus. And had no one budged, what would have happened if tariffs landed on the top source of imported roses just before Valentine’s Day?

The risks will get substantially bigger. Some 29% of U.S. international goods trade takes place with Canada and Mexico. The auto industry depends on tight integration in a cluster spanning Michigan and Canada; $150 billion of vehicles enter the U.S. through its northern and southern borders annually. Oil analysts expect gasoline prices to rise on trade barriers. This is a lot of pain to take for still-unclear goals.

Sure, backing down while waving a symbolic victory could win headlines. But unless there’s some substantial change in the terms of trade or some proof that the U.S. will actually follow through on threats, it would serve as a weak precedent ahead of a bigger, existential confrontation with China. Hurtling towards a choice between showing weakness or hamstringing the economy is a tough spot, even for a professed dealmaker-in-chief.

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CONTEXT NEWS

The White House declared victory in a trade dispute with Colombia over the treatment of deported migrants on Jan. 26, stating that the country “has agreed to all of President Trump’s terms.” Colombia’s foreign minister said his country had agreed to allow U.S. deportation flights to land after receiving assurances that deportee conditions would be improved.

Trump has said that 25% tariffs on Canadian and Mexican imports will be imposed starting Feb. 1 unless the U.S. demands on trade and border security are met.