Opinion | Retaliatory tariffs are not the best response to Trump’s bullying

Name: US pauses tariffs on Canada and Mexico
Uploaded: 2025-02-07T06:30:13.000Z
Duration: 2 min 4 s
Description: US pauses tariffs on Canada and Mexico

While the instinct to retaliate is natural, there are more productive ways to respond that won’t hurt domestic economies like tariffs do

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People shop at a discount store near the US-Mexico border in San Ysidro, California, on November 26, 2024. Photo: AFP

Dani Rodrik

Published: 2:30pm, 7 Feb 2025

By wielding the threat of imposing across-the-board tariffs against Canada, Mexico and China for no justifiable reason, US President Donald Trump has demonstrated that he is a major risk for America and its trade partners. But how other countries respond to Trump’s reckless policies will ultimately determine how much damage the global economy will sustain. America’s trade partners need to keep their cool and resist the temptation to magnify the insanity.

Most analysts seem to believe that responding in kind is the right thing to do. As expected, Canada and Mexico both threatened retaliation and eventually reached deals with Trump to avert the tariffs temporarily.

But it is not clear why retaliation should be regarded as normal and desirable when the tariffs that trigger them are viewed – correctly – as crazy. Policymakers elsewhere must not lose sight of the truth that Trump has chosen to disregard: the costs of tariffs are borne mainly at home.

The instinct to retaliate is natural. To deter a schoolyard bully, one must confront him with determined opposition. But far from dissuading Trump, other countries’ tariffs will further feed his misplaced grievances. More importantly, the logic of retaliation fails in this instance.

The tit-for-tat model works to ensure cooperation in certain circumstances, such as the prisoners’ dilemma. In this scenario, each actor benefits from their own unilateral move but is made worse off when the other actor responds in kind. Trump’s tariffs do not fit this characterisation.

Contrary to what Trump claims, US tariffs are paid mostly by American consumers and firms that use imported inputs. Thus, the “optimum tariff” argument, by which a country could gain by exercising monopoly power on world markets, does not seem to apply.

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US pauses tariffs on Canada and Mexico