Canadian and Australian voters are rewarding defiance of Trump’s tariffs

Welcome to Trade Secrets. Something struck me over the weekend when I saw Donald Trump at Pope Francis’s funeral in Vatican City: he had contrived to visit one of the very few states on earth he hasn’t hit with tariffs. Thinking about it, Italy should totally do a deal with the Vatican to route its exports to the US through it to circumvent the American president’s duties on the EU. The Lateran Treaty, but for rules of origin. I can’t imagine any objections.

In this newsletter, I’m looking at this week’s federal elections in Canada and Australia and pondering the electoral returns to be made from defying Trump’s bullying, which seem to be gratifyingly high. Charted Waters, which looks at the data behind world trade, is on stock prices.

The Anglosphere strikes back

It’s a neat experiment to have elections in two of the US’s Five Eyes allies around the end of Trump’s first 100 days in office. (The UK on Thursday has some local elections and a “by-election” to replace an MP forced to resign for hitting a constituent, itself perhaps something of a metaphor for the Trump administration, but no one’s really taking that as a referendum on Sir Keir Starmer’s trade negotiation strategy — on which, more below.)

There’s always a risk of projecting an outside obsession on to a national debate, and Australia’s election next week is focused more on cost of living issues than on its dealings with Trump. Still, the tariffs are certainly a big subject — and in Canada they’re clearly a huge issue. The elections will very probably show that it’s a bad idea to position yourself as someone who can coax a good deal out of Trump to negotiate the tariffs away.

I guess it wasn’t evident to all just how crazy Trump was going to be on trade. Mindful of my watchword, the evidence for which continues to accumulate on a daily basis, that includes me. So boasting of your ability to get great deals out of Trump, as did Canada’s Conservative leader Pierre Poilievre in early January, might have been a morally reprehensible idea. But before inauguration day on January 20, it wasn’t obviously a self-destructive one.

Canada has now gone through a learning curve incredibly quickly, providing an excellent step-by-step demonstration to the rest of the world. The Liberal former prime minister Justin Trudeau tried co-operation and charm as soon as president-elect Trump made his tariff threats in November. It was worth a go, but the effect didn’t last: the threats came back. Then Trudeau tried standing up to Trump with a promise of immediate retaliation and rallied the nation with a terrific speech. That did seem to work.

It helps that Trump has managed to hammer the US stock market (and most likely its economy) more than Canada’s. Mark Carney taking over as prime minister from Trudeau and amping up the rhetoric to 11 has delivered one of the fastest polling swings in a democracy anyone seems able to remember. Poilievre’s Trump card, as it were, has turned into a massive disadvantage.

It’s a less obvious picture in Australia, which is in any case economically far more dependent on China as an export market than the US. It’s Canberra’s security relationship with Washington that matters. That situation doesn’t look great. But unlike with Russia and Ukraine, Trump hasn’t actually switched sides in Asia, nor is he (yet) trying to annex Australia.

Still, it does look to be a clear tactical error for the opposition Liberal party leader Peter Dutton to have boasted earlier this month that the Liberal-led government in 2018 used the US-Australia security relationship to negotiate its way out of Trump’s steel and aluminium tariffs the first time round, and to suggest doing the same again. The Liberal prime minister at that time, Malcolm Turnbull, has warned very loudly and publicly that the world has changed and Trump is not to be trusted. If the Labor government gets re-elected, the lesson for other countries — if it isn’t already obvious — is that you gain from taking a firm line on talking trade with Trump.

This lesson might even just be dawning on the UK, where Starmer’s government has established a bizarre habit not just of boasting of its ability to get along with Trump, but of claiming inspiration from his administration and specifically Elon Musk’s so-called Department of Government Efficiency vandals. Britain also reckoned it was relatively safe given it didn’t run a big surplus with the US, only to find that, after the “liberation day” tariffs on April 2 and the “pause” retreat on April 9, it had ended up with the same 10 per cent baseline tariff as almost everyone else. 

The meretricious idea from Lord Peter Mandelson, UK ambassador to Washington and an (unimpressive) former EU trade commissioner, to prepare a pre-emptive package of concessions on tech and tax issues looks increasingly unwise. The UK has at least rhetorically indicated it will prioritise EU over US trade. But now would be an excellent time to slow-walk Trump and push ahead with Brussels.

Slow-walking Trump to his tariff cliff-edge

Speaking of which, the UK evidently thought it would get an early-bird discount by being quick to come to a deal. This also looks like a bad prediction. The Trump administration’s tactics, as briefed here to the Wall Street Journal, are genuinely hilarious, even leaving aside Trump’s claim to have negotiated more deals (200) than there are countries in the world.

Six major trading partners each week simultaneously negotiating tariffs, quotas, rules of origin, regulatory and other non-tariff barriers and economic security with an administration whose capacity to execute trade policy is such that it tries to tariff an island of penguins? If you live-streamed these talks on global pay-per-view you could close the US fiscal deficit on the proceeds, a cringing world watching through its fingers in horrified fascination. It’s a real shame Trump was in tariff-free Vatican City so couldn’t appear in a trade negotiation special of The Apprentice over the weekend, except this time with him getting fired.

Oh, but wait. There’s more. Apparently the US’s three biggest trading partners (Canada, China and Mexico) won’t be in these cycles of talks because . . . reasons. And India also isn’t because . . . other reasons.

China last week showed open contempt for the process, explicitly briefing that it wasn’t in talks with the US and telling the Americans to knock off claiming it was. Japan, usually more circumspect about public disagreements, has also been pretty clear that it’s not acting under US instructions.

And since hardly any of the US’s trading partners have felt the need to retaliate with their own tariffs, they aren’t harming their own economies in the meantime. China has hit back, obviously, but finds itself quite free to adjust that retaliation to prevent self-harm without looking weak.

With Trump’s popularity falling by the week, financial markets on the alert for any further sign of chaos and transpacific container trade simply drying up, for which see Charted Waters and the Trade Links section below, trading partners without a lot of direct reliance on exports to the US would be well advised to drag talks out and let the 90-day negotiation deadline loom. Also that would be much funnier for the rest of us to watch, which by this stage is almost the main point.

Charted waters

A nice illustration of the weapon Trump has handed his trading partners in the tariff talks: the threat of the “reciprocal tariffs” on April 2 pushed stocks down in Europe and the US, while the “pause” on April 9 revived them. But the notion that the US economy is in the hands of dangerous buffoons has continued to weigh relatively more on US equity prices since then, even without more big tariff announcements.

Trade links

The genuine prospect of shortages in American stores is rising as transpacific freight dries up because of the Trump tariffs on China: logistics people note there are currently no international cargo ships in the Port of Seattle.

Politico looks at the prospect of the Trump tariffs encouraging the EU to do trade deals elsewhere.

Apple wants to move iPhone manufacturing to India, but China’s unlikely to give it up without making it difficult.

The FT’s Unhedged newsletter thinks that unless some certainty about tariffs is established, markets will find a new, much lower level that takes account of years of volatility to come.

Volkswagen has overtaken Tesla as the number one electric vehicle seller in Europe, which must give some relief to Brussels policymakers who are trying not to just hand the whole European EV market straight from a US manufacturer to Chinese ones.

The FT’s Lex column looks at how the tariff wars might be delaying the deployment of robot technology.

Trade Secrets is edited by Harvey Nriapia