中文
By Anthony William Donald Anastasi
Donald Trump has yet to assume office for his second term, yet he has already begun threatening to slap tariffs on imports coming into the U.S. As of now, there have been two rounds of threats. The first is on imports from Mexico, Canada (25 percent on all imports from both countries) and China (an additional 10 percent on all imports) due to the flow of drugs, namely Fentanyl, and illegal migration; the second on BRICS countries wishing to trade in a currency other than the U.S. Dollar.
Both of these threats are misplaced but for different reasons. These threats, while seemingly aimed at addressing pressing issues, risk causing significant economic fallout, especially when considering their impact on major trading partners, and may ultimately worsen the very problems they claim to address.
Let's begin with the first round of threats and tariffs on Mexico, Canada and China. While fentanyl trafficking and illegal migration are legitimate concerns, tariffs are a blunt instrument unlikely to effectively combat either problem. Instead, these measures risk damaging critical trade relationships and driving up costs for American businesses and consumers, given the high volume of imports from these nations. Moreover, these tariffs could provoke retaliatory measures, further straining diplomatic ties and economic stability. These issues are global in nature and require a global solution.
The flow of illegal migrants affects Mexico just as much as the U.S. To enter the U.S., these migrants must first pass through Mexico, with many of them staying there. Migrants who make this extremely dangerous journey often have legitimate reasons to leave their home countries, as they are fleeing poverty, crime or even political persecution.
Ultimately, to solve this issue, the root cause must be addressed, and for the U.S., there is no better partner to solve this issue with than Mexico. Together, the two nations can promote development projects, deeper trade links based on fair trade and security cooperation in their countries. Mexico already feels the urgency of this issue, and tariffs will not change that.
The concern about Fentanyl is also legitimate. However, due to the global supply chain needed to produce this drug, this requires a global solution. The precursors of this drug come from many places and are produced in Mexico; then smuggled into the U.S. Cooperation between these countries is essential to disrupt the global trade of fentanyl effectively. By working together, they can implement stricter controls on precursor chemicals, enhance border surveillance and dismantle trafficking networks at their source. These efforts must be coordinated, as no single nation can address this issue alone. Domestically, the U.S. must shift from criminalizing drug addiction to treating it as a medical issue.
Countries like Portugal, Switzerland and the Netherlands treat addiction as a public health issue, providing accessible treatment and support rather than punitive measures, which has led to significant reductions in overdose deaths and drug-related crime. Adopting a similar public health approach can address demand while fostering international cooperation to disrupt fentanyl's supply.
Despite the recklessness of Trump's tariff threats to Mexico, Canada and China, his threats against BRICS countries reveal an even deeper misunderstanding of global trade dynamics. While Trump has been inconsistent on most issues, he has consistently fixated on the U.S.'s persistent trade deficit. However, the U.S. dollar's status as the world's reserve currency makes these deficits almost unavoidable. A country's trade balance reflects the difference between its domestic savings and investment. When the U.S. runs a trade deficit, it must run a corresponding capital account surplus, driven by foreign investment inflows.
The dollar's role as the reserve currency inflates its value, driving down domestic savings relative to investment by boosting the value of dollar-denominated assets. Contrary to Trump's focus, the currency of trade is less critical than the currency accumulated by surplus countries to purchase assets. Imposing tariffs on nations moving away from the dollar would not resolve the trade imbalance – it could worsen it by appreciating the U.S. dollar further and reducing the competitiveness of American exports.
If Trump genuinely seeks balanced trade, he should target capital inflows into the U.S., not trade partners. Policies like taxing foreign capital inflows or limiting the purchase of dollar-denominated assets could devalue the dollar, deflate asset prices and raise the domestic savings rate to align with investment levels, ultimately addressing the trade imbalance.
Trump's tariff threats are misguided solutions to complex global issues. Addressing illegal migration, fentanyl trafficking and trade imbalances require international cooperation, nuanced economic policies and a shift in domestic approaches. Blunt tools like tariffs only exacerbate problems, underscoring the need for thoughtful leadership and collaboration to achieve sustainable solutions.
Anthony William Donald Anastasi, a special commentator on current affairs for CGTN, is an associate professor of economics at Wenzhou Business College.
