RPT-BREAKINGVIEWS-Trade war brinksmanship reveals US vulnerability

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

By Gabriel Rubin

WASHINGTON, Feb 3 (Reuters Breakingviews) - Another weekend, another potentially aborted trade war. After threatening immediate 25% tariffs on Colombian goods only to reverse course, U.S. President Donald Trump may be stepping back from similar levies on his North American neighbors. On Monday, he announced a one-month pause on tariffs targeting Mexico, just two days after implementing them via executive orders that also hit Canada and China. Rapidly spiraling tit-for-tat trade hostilities can wreak havoc on exposed sectors. Nowhere is this truer than for carmakers and food producers, which the government bends over backwards to protect. Taking your own favored industries hostage offers poor negotiating leverage.

Canada and Mexico are the U.S.’s two largest trading partners. Many effects of reducing commerce with them would emerge slowly, through steady price increases or lost efficiencies each country can share by specializing. Agribusiness and automakers, though, face immediate pain. About half of U.S. fresh produce imports come from Mexico. Crops grown in the U.S. won’t be spared, either: Canada is a top supplier of fertilizers, and the world’s largest exporter of potash specifically, 46% of which goes to its southern neighbor. Senator Chuck Grassley, a senior farm-state Republican, publicly pleaded for Trump to exempt the substance from levies.

The cluster of auto production along the northern border is another choke point. General Motors GM.N and Ford Motor’s F.N stocks dropped by roughly 6% and 4%, respectively, Monday morning before the announcement of a climb-down with Mexico raised hopes of similar rapprochement with Canada. Parts and assemblies cross between the countries repeatedly, compounding woes. Even the fear of being caught unprepared spooks investors: GM’s shares crashed 10% despite reporting strong financial results after executives offered scant answers on trade war contingencies.

These are political sacred cows. From former President Barack Obama engineering rescues for Detroit’s marques in 2009 to Trump bailing out soybean farmers caught in his first-term spats with China, the government is not willing to leave these industries behind. But the problem with this round of brinksmanship is that, beyond gestures at drugs and immigration, there are so few clear goals. Alleviating damage with more handouts is an impossible solution to an unnecessary problem.

Instead, these politically-advantaged industries may just use their sway to try to get Trump to back down, as Grassley’s intervention implies. Otherwise, U.S. trading partners might call Trump’s bluff, knowing that - even if the raw economic damage threatens to be larger for them - outsized pain will be inflicted. Whether with bark or with bite, Trump’s trade war gambits have a crucial weakness.

Follow @Rubinations on X

CONTEXT NEWS

U.S. President Donald Trump paused new tariffs on Mexico for one month after the countries reached a deal on border security that would send 10,000 Mexican troops to crack down on drug, weapons, and human trafficking. Tariffs of up to 25% were still set to go into effect on Canada as of midday on Feb. 3, barring a last-minute deal between the two countries.