Having launched his “trade war” on Wednesday, 2 April (so-called “Liberation Day” which the Economist has re-named “Ruination Day”) after weeks of global economic chaos, Donald Trump seems finally to be thinking twice (at least for 90 days) about some of his cavalier tariff policies.
Perhaps this was because of Republican pressure in Congress from those fearing a recession, or has he learnt the lesson of what happened to Liz Truss in the UK, who was effectively deposed by the bond markets?
Respected economists have been almost unanimous in maintaining that it is the US which will suffer most from US tariffs, as they will generate inflation and increase the cost of borrowing. (Thanks to Truss, the UK is still paying what her detractors have called a “moron premium” on our debt).
It is unlikely that Trump will secure what he sees as favourable trade deals with around 70 countries (according to his Treasury Secretary) in 90 days. Most trade deals take years to negotiate, so the chaos is likely to resume.
The parallel with Truss, of course, has limits, because the US Constitution means that Trump is likely to remain in post for his full term (if not beyond, if one pays heed to his stated ambitions).
Where did Trump get his ideas about using tariffs to finance tax cuts from?
There is, in fact, a clue, in his inauguration speech of 20 January. The only former President on which he heaped praise, was a somewhat outdated model, namely William McKinley, President from 1897 until 1901, whom he described as a “great president”.
Trump took the opportunity to restore the name “Mount McKinley” to the US’s highest mountain (in Alaska) reversing the decision of Barack Obama to reinstate the indigenous name of “Denali”.
Trump, McKinley and tariffs
According to Trump: “President McKinley made our country very rich through tariffs.” However, as pointed out by CNN, the McKinley tariff was imposed when he was a law-maker in Congress in 1890, raising average tariffs from 38% to nearly 50%.
As le Monde has observed, this led to immediate price increases, which contributed to the Republicans’ subsequent defeat in the 1890 elections and indirectly led to the 1893 recession, with a double-digit unemployment rate.
Subsequently (apparently unbeknown to Trump) as a popular President, McKinley changed his mind on tariffs, realising they had stifled exports.
In a speech made on 5 September 1901, at a trade fair in Buffalo, New York State, McKinley stated: “Commercial wars are unprofitable. A policy of good will and friendly trade relations will prevent reprisals. Reciprocity treaties are in harmony with the spirit of the times, measures of retaliation are not.”
This was his final speech, as the next day he was assassinated by an anarchist.
Trump, McKinley and USA expansionism
In fact, Trump has, in the past, praised McKinley on two counts, not just one. In addition to tariffs, during his campaign, he praised McKinley’s record of expanding the USA.
Trump has made 19th century style imperial claims threatening Panama, Greenland and Canada. McKinley’s Spanish-American war in 1898, reflected the US interest in purging their region of European colonial powers.
It arose out of tensions between Spain and the US following fighting in Cuba between Spanish colonialists and Cuban revolutionaries. McKinley asked Congress for authorisation to stop the fighting in Cuba and demanded that Spain give up control of Cuba, with a view to guaranteeing its independence.
After the short war, in which the US defeated the Spanish Caribbean forces, in December 1898, the Treaty of Paris was signed. This forced Spain, not only to relinquish claims on Cuba (which became a “protectorate” of the US), but also to cede sovereignty to the US over Guam, a small island in the western Pacific Ocean, and Puerto Rico, a small Caribbean archipelago about 1,000 miles south-east of Miami Florida.
In addition, the US also purchased the Philippines in Southeast Asia from Spain, for $20 million. McKinley also used the war as a pretext to annex the independent state of Hawaii.
The war thus allowed the US to establish its predominance in the Caribbean region. It also secured the position of the US as a Pacific power, allowing it to pursue its strategic and economic interests there, including establishing military bases.
Potential conflicts of interest for the UK
The UK states that it is attempting to reach a trade deal with the US, but as with the other trade deals which the UK has signed up to since Brexit, this is likely to be incompatible with any substantive “reset” of closer trading relations between the UK and the EU (which represents around half of our trade) on which discussions are planned at a summit in London on 19 May.
A further somewhat delicate issue, in the context of the promise of an unprecedented second state visit to the UK by the American President, to be hosted by the King, is the fact that King Charles III is legally King, not only of the UK, but also, of around 15 other Commonwealth countries, having been declared as such by Canada in a Proclamation in Ottawa on 10 September 2022.
The King has recently met with two Prime Ministers of Canada, Justin Trudeau and his replacement Mark Carney, in March. He is also said to have used symbols to indicate his support for Canadian sovereignty.
There may come a point where leaders in the UK must make a choice, in relation to the US’s second term President, about where their interests and loyalties truly lie.
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