Trump’s Golden Age Begins With a Brutal Trade War

President Trump won last fall’s election on the pledge of a new “golden age.” Public confidence perked up and the stock markets leapt.

This week showed the dark side of that promised golden age. On Tuesday, as Trump boasted to Congress that “America’s momentum is back,” he was allowing steep new tariffs on Mexico and Canada to take effect, initiating what may become the most brutal trade war since the 1930s.

Stocks have largely surrendered their postelection euphoria, consumer confidence has wilted, and economists talk of stagflation —a spell of slow to stagnant growth and higher inflation.

Mindful of the fallout, Trump’s advisers have pressed for ways to delay or modify the tariffs. A 30-day carve-out for autos was announced Wednesday, and on Thursday Trump said tariffs on some Mexican and Canadian goods would be delayed until April 2.

Don’t assume, though, that anything will fundamentally change. Trump is early in his term, enjoys complete control of his party and Congress, and is counting on tax cuts to revive confidence. Lower interest rates and oil prices may soften the sting of tariffs. All that gives him freedom to indulge his most deeply held instincts on trade.

His decision to effectively repudiate the North American free-trade pact he himself negotiated in 2018 flows from a lifelong belief that allies and trading partners are freeloaders who diminish rather than augment American wealth and security. A similar mindset explains his decision to cut off aid to Ukraine and signal diminished support for Western European security.

He insists tariffs will make America rich. But this is true only in a relative sense.

If the tariffs stay, Canada and Mexico are likely both headed into deep recessions followed by years of painful adjustment to lost access to the massive U.S. market.

The fallout for the U.S. will be much less thanks to its size, wealth and entrepreneurial dynamism; but it will be negative, nonetheless. The U.S. would lose the efficiency and economies of scale that a continentwide market affords and the trust that has kept relations with its neighbors placid and predictable.

Trump’s real endgame

Outsiders have struggled to discern Trump’s endgame because he and his advisers advance multiple, conflicting motives for his behavior.

His advisers describe him as a dealmaker for whom tariffs are a means to an end. But through his actions, Trump has shown that tariffs are the end.

The stated justification for tariffs on Canada and Mexico was to reduce the inflow of fentanyl and illegal migrants. They complied: Illegal crossings at the southern border came to a near halt and Mexico extradited 29 drug bosses to the U.S. Seizures of fentanyl across the northern border, already low, plummeted in January, according to U.S. data.

Trump went ahead with the tariffs anyway. And in remarks Monday, he made his motives clear. “It’s going to be very costly for people to take advantage of this country,” he explained. “They can’t come in and steal our money and steal our jobs and take our factories and take our businesses and expect not to be punished.”

He is seeking not just to eliminate drugs, illegal immigration or even trade deficits, but to appropriate the industrial bases of Mexico and Canada. “What they have to do is build their car plants, frankly, and other things, in the United States, in which case you have no tariffs,” he said.

With Canada, his aims are more ambitious, and ominous. He has said Canada can avoid the tariffs by becoming part of the U.S. “What he wants is to see a total collapse of the Canadian economy, because that’ll make it easier to annex us,” outgoing Prime Minister Justin Trudeau said Tuesday.

The near and far costs

The U.S. market is too big to ignore so many multinationals will indeed choose to locate in the U.S. rather than Canada, Mexico or elsewhere.

That will benefit some American workers and companies. U.S. steelmakers are thrilled that prices are already up about 30% since January, before Trump announced tariffs on the metal.

Studies of past tariffs, though, show that gains to producers are more than offset by losses to consumers. Steel users are already complaining. Based on previous tariff episodes, Goldman Sachs expects consumers to pay 70% of the new tariffs on Mexico, Canada and China, amounting to $260 billion a year.

The cost to consumers comes not just in the form of higher prices, but the products they never buy because they aren’t available or are too expensive.

Anderson Economic Group, a business consulting firm, estimates tariffs will add $4,000 to $10,000 to the cost of a North American-built vehicle. For models with few substitutes, 75% to 80% of that will be passed on to consumers, reducing affordability and thus sales, said President Patrick Anderson. In addition, some models and options will simply no longer be available because they can’t be built at a price acceptable to the consumer, he said.

Every action has a reaction

Trump proceeds on the assumption that other countries have much more to lose from an economic or geopolitical rupture than the U.S. and will thus accede to his demands. Thus far, he’s been mostly right.

But should Mexico and Canada conclude that tariffs are not a negotiation but the endgame, their strategy will shift, from trying to please Trump to fortifying themselves against a newly capricious and threatening neighbor.

Until the 1990s, relations between the U.S. and Mexico were marked by mistrust and lack of cooperation on a broad range of political and economic issues.

“Our whole DNA was anti-U.S.,” said Jorge Guajardo, a former Mexican ambassador to China who is now with DGA Group, a global risk consulting firm. Free trade, he said, changed that. If it goes away, Mexico would revert to “complete mistrust of the northern neighbor,” reducing cooperation on crime, immigration, health and climate.

In Canada, Trump’s tariffs and professed aim of annexation have aroused a wave of nationalism and anger with little modern precedent.

The forthcoming federal election has been transformed from a referendum on the unpopular Trudeau, to a contest over who can best stand up to Trump.

“I don’t think Canada can ever again look upon the U.S. as a reliable economic partner,” said John Manley , a former deputy prime minister. “It has to develop its own strategy for building its own economy and looking elsewhere.”

Write to Greg Ip at greg.ip@wsj.com