The limits of Liberation Day

Economists may think Donald Trump urgently requires a crash course in Economics 101 since the extraordinary tariffs he imposed on most of the world on April 2, "Liberation Day" are incompatible with almost any economic logic — including the 46th President's expectation of higher revenues to finance tax cuts for his billionaire cronies.

- SWOT KANIKA DATTA

But putting aside these motives and inchoate comments about the "unfairness" of trade deficits, everything begins to make sense when the tariffs are viewed from a political angle. As businesses nervously calculate the costs of Liberation Day, Mr Trump's core Maga supporters are cheering. Mostly blue-collar and often unemployed, they think import tariffs will bring manufacturing back to the US. The president of the United Auto Workers (UAW), for instance, said the 25 per cent tariffs on imported vehicles "rights a historic wrong" — the North American Free Trade Agreement of 1993-94 that saw manufacturing operations shift to Mexico and Canada.

The immediate response of automakers suggests otherwise. Though General Motors said it would move some production back to Indiana, others such as Jaguar Land Rover, and Audi have stopped shipments of their vehicles to the US—so much for tariff-driven revenues. Stellantis has, in fact, idled factories in Canada and Mexico that make the Chrysler and Jeep brands, and laid off 900 workers in Michigan who supplied components to those units — rather defeating the purpose of the tariff.

The UAW may see hope in the fact that General Motors said it would shift some production to its plant in Indiana to make light trucks, however. This product is, in fact, a good example of the problems with tariff protections on manufacturing. Pick-up or light trucks have been behind a 25 per cent tariff wall since the 1960s, originally as retaliation against a German tax on imported chicken.