The US imposed 25 per cent tariffs on both Canada and Mexico on Tuesday, as well as an additional 10 per cent tariff on China. Beijing was slapped with an initial 10 per cent tariff last month, while both Canada and Mexico were able to successfully negotiate for a one-month delay. But if economic logic is to prevail, the Trump administration will have to roll back at least some of these tariffs. Just a question of time. Here’s why:
The structural issues with the American economy
The US economy relies heavily on trade, and that’s part of its structural construct in the post World War-II era. This is because the American economy consumes more goods than it produces domestically. As a result, its imports are almost always higher than its exports, resulting in a trade deficit where it imports more than it exports.
Why is that so? When a country consumes more goods than it produces domestically at full employment, it needs to source the additional goods from other countries through imports. And that is resulting in a high trade deficit – the gap between what it buys from other countries and what sells to them
