Trump’s latest tariff tantrum unlikely to end well for the US

After devoting the first half of 2026 to an ineffectual, expensive and inconclusive military adventure in Iran, it seems US President Donald Trump is about to turn afresh to the wars he loves best – the tariff wars he still believes can make America great again. He can’t quite walk away from the war in the Persian Gulf. Iran’s refusal to capitulate has left Trump with an awkward obligation to fight on, despite the widespread unpopularity of the conflict, even among his base, and the need to focus attention on midterm elections just four months away. Perhaps the White House has concluded that the war and its inflationary effects must be relegated to the back burner if support for Republican candidates in November’s midterms is to be protected. Whether trade wars can distract attention is open to question. At least, the White House seems determined to try – even if it means dredging through ancient corners of US legislative history to bypass the US Supreme Court’s ruling against Trump’s “Liberation Day” tariffs rationalised with the 1977 International Emergency Economic Powers Act. One signal of a renewed tariff war came just over a week ago when Trump slapped 25 per cent tariffs on imports from Brazil after a year-long probe, under Section 301 of the 1974 Trade Act, into unacceptable unfair trade practices. On the heels of those tariffs, the US on Thursday imposed a wave of Section 301 tariffs, ranging from 10 to 12.5 per cent, on 60 countries, including China, Japan, South Korea, India and European Union member states, as a result of investigations into forced labour practices. While the Section 301 probes were in progress, Trump’s tariff warriors had been relying ad hoc on balance-of-payment emergency powers under Section 122 of the 1974 Trade Act. But those tariffs were set to expire on Friday. On Monday, Trump announced 50 per cent tariffs on about US$20 billion of Canadian exports, drawing on Section 338 of the 1930 Tariff Act, which has never been used in the past 96 years. It is allowed in retaliation against discrimination. The logic underpinning Section 338’s use and how the tariff level was calculated has bamboozled many. But as Trump wages psychological warfare against his least favourite ally, no clear answer is likely. Unpredictable Trump is simply being unpredictable Trump. Perhaps the tariffs form part of the fractious renegotiation of the US-Mexico-Canada trade pact. Perhaps they were part-punishment for smoke from Canadian wildfires affecting US border communities. Also in the tariff brew came plans to reshore generic drug manufacturing by slapping 100 per cent tariffs on imports from 2028, and an executive order to build and protect supply chains for defence-related critical minerals less dependent on China. This order directs military contractors to aim to ensure “whole of supply chain” security as speedily as possible. This initiative appears to address China’s grip on rare earth supplies, and on other critical minerals like graphite, gallium and germanium. Apparently, 78 per cent of components in US weapons systems contain China-sourced critical minerals. In US Navy weapons systems, that reaches 92 per cent. These moves illustrate the extent to which the paranoid obsession with national and economic security has crept into the heart of US foreign policy. Note the creation last December of “Pax Silica”, a coalition of 24 countries led by the US, whose mission is to create “China-free” AI-related supply chains. In so far as Trump trusts or relies on diplomacy, it seems his tariffs and initiatives to China-proof supply chains are set to dominate US policy in coming months. Earlier this week, US Secretary of State Marco Rubio met his counterparts in the Association of Southeast Asian Nations and Foreign Minister Wang Yi in Manila, Philippines. US Trade Representative Jamieson Greer travelled to Mexico for trade talks. Meanwhile, a US Congressional fact-finding mission under the US-China Economic and Security Review Commission was in Beijing this week meeting officials and industry leaders, with the aim of helping American lawmakers replace assumptions with “first-hand facts”, according to the commission’s vice-chairman Mike Kuiken. One can hope that their findings will also inform preparations for Trump’s summit with President Xi Jinping in Washington in September, assuming it’s even still happening after Trump accused China of influencing US elections. Whatever the smoke and mirrors around the tariff wars, most of it has to do with China. Trump’s assault on multilateralism and the Bretton Woods system was ostensibly about cutting the US trade deficit – partly by boosting revenues from tariffs – and reshoring manufacturing Regardless of Trump’s hyperbole and braggadocio, the trade deficit remains massive, and in May surged to its highest level since March last year, at about US$106 billion. Moreover, some Chinese goods destined for the US have been diverted through intermediate countries like Mexico and Vietnam. Overall China’s exports are up 17.6 per cent in the first half of 2026. Evidence of reshoring has yet to appear. Tariffs have made no dent in the country’s US$39 trillion budget deficit, and accounted for only about 3.4 per cent of total federal revenue in 2025. As Alan Beattie, who writes the Financial Times’ Trade Secrets newsletter, summarised: “The Trump tariffs aren’t economically catastrophic, but they are a massive mess.” Tariffs might be Trump’s favourite word, but that might not stop them causing him grief.