Is Trump about to TACO on tariffs? Don’t bet on it

The headlines started popping up across Canadian media on Friday afternoon: Donald Trump was lowering tariffs on Canada.

In response to a plea from Senator Susan Collins of Maine, a Republican at risk in next month’s midterm elections because of the trade war against Canada, the U.S. President was apparently taking a step back.

Those hopeful headlines were quickly rewritten.

It soon became clear that Mr. Trump wasn’t really reducing tariffs. He was simply adjusting the goods in his tariff basket.

The tax on some Canadian exports will go down as of Oct. 30; levies on other goods will go up.

As The Globe and Mail reported, “The lifting of 50-per-cent tariffs on 22 categories of goods by the United States and the addition of 100 new categories will have a roughly equivalent impact in terms of dollars – about $2.5-billion in goods were exempted with about $2.6-billion newly targeted.”

Last year, Financial Times journalist Robert Armstrong coined the “TACO theory” of the Trump administration. He pointed out that, in the administration’s early months, investors had profited by betting against Mr. Trump carrying through on threats or sticking with unpopular actions.

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He called it the “TACO trade.” TACO stands for “Trump Always Chickens Out.”

The phrase still gets trotted out. Too often.

If Mr. Trump always chickened out, then his tariffs on Canada would have disappeared months ago, the United States-Mexico-Canada Agreement would be back in full effect, and everyone’s favourite song, sliding into its 50th week at the top of the Billboard charts, would be a Michael Bublé-Kid Rock duet of Kumbaya.

Yes, Mr. Trump has (thankfully) backed down many times. To wit: He never invaded Greenland. More wit: He hired pretend lawyer and future Hooked on Phonics client Katie Zacharia as press secretary, then canned her after one press conference.

But faced with resistance, he has also locked the wheel and leaned on the accelerator.

The war with Iran is an example. So is the trade war against Canada.

I always expected that Mr. Trump would make concessions to the Iranians to escape a war he’d started and wanted out of. Last summer, he took a big step in that direction, agreeing to a ceasefire that offered Tehran a generous payoff for unblocking the Strait of Hormuz.

However, after Iran signed the deal and then declined to honour it, bidding for more concessions, Mr. Trump stopped the TACOs.

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In recent months, the U.S. has changed tactics but not abandoned the conflict. It is now waging an economic war – blocking Iranian oil exports while quietly escorting friendly tankers through the strait.

Combined with increased use of pipelines that bypass the strait, the approach is yielding results. According to the ship-tracking firm Kpler, oil exports from the Middle East recently surpassed their pre-war level.

However, avoiding Iranian attacks is costly. That’s why crude prices remain elevated, and diesel is in short supply. For Americans, there’s been no relief at the pumps. Voters are poised to take away the GOP’s congressional majority.

Mr. Trump has, of course, repeatedly claimed that victory is imminent. You’d run out of fingers and toes if you tried to count the number of times he’s said that the Iranians have no cards, and that a deal to end the conflict – in American triumph – is very, very close.

Mr. Trump has not TACOed against Iran. Instead, he has continued to try to get Iran to TACO to him, while insisting that the other side is close to doing so.

That describes the course of his trade war on Canada.

There’s no guarantee that the U.S. President won’t some day take a big step back on tariffs. With enough pressure from Americans, he might. But right now, with his congressional majority in peril and facing voter anger over the impact of his tariffs on Canada, Mr. Trump is barely budging. He made a small concession on Friday for the benefit of one senator in one state, but cancelled it out with tariff increases elsewhere.

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Nobody knows what tomorrow will bring, and that goes triply for anything at the whim of Mr. Trump. Rumours have long abounded of a trade deal with Canada being close, and the President is happy to feed them.

On Sunday, he said things would be settled “pretty soon” because Canada was “willing to give us anything at this moment.” He’s being saying that for months.

What should be clear is that Mr. Trump is not about to do a complete TACO on tariffs. Canada must continue to try to push in that direction, but as Canada’s chief trade negotiator Janice Charette said last week, the USCMA’s status quo ante – full-blown Canada-U.S. free trade – is history, at least for the foreseeable future.

“I don’t think we should expect we’re going back to tariff-free trade with the United States,” she told an audience in Toronto last Thursday. “No country in the world will be in a position to get tariff-free trade with the United States. And so we have to think about what is the narrowest basket of goods, at the lowest possible tariff rate, with the best market access … That’s what our goal has to be.”