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

Former New Hampshire Gov. Chris Sununu delivered a warning to Treasury Secretary Scott Bessent during a recent visit to Washington: Already-high airfares will surge if the war in Iran doesn’t end soon.

Sununu, a Republican who represents some of the biggest airlines as president of the industry group Airlines for America, has for weeks sounded the alarm to Trump administration officials about the economic fallout from high jet fuel prices. The war, Sununu has argued, must come to a close soon, or things will get worse.

Administration officials have gotten the message.

Privately, President Trump’s advisers are increasingly worried that Republicans will pay a political price for the rising fuel costs, according to people familiar with the matter. Many of those advisers are eager to end the war, hoping prices will begin to moderate before November’s midterm elections.

The fallout from the U.S.-Israeli attack in late February has slowed traffic through the Strait of Hormuz, a vital shipping lane, triggering a sharp increase in oil, gasoline and jet-fuel prices.

That means consumers are grappling with high costs ahead of the summer travel season, as they consider vacation plans.

Sixty-three per cent of Americans said they put a great deal or a good amount of blame on Trump for the increase in gas prices, according to a new poll conducted by NPR, PBS and Marist.

More than 8 in 10 Americans said struggles at the gas pump are putting strain on their finances.

Jet-fuel prices roughly doubled in a matter of weeks after the war began, and they have remained high. Airlines have said that will add billions of dollars of additional expenses this year, squeezing profit margins.

U.S. airlines spent more than $5 billion on fuel in March—up 30% from a year earlier, according to government data.

Carriers have been raising ticket prices, hoping to pass the cost along to consumers, and they are culling flights that will no longer make money at higher price levels.

In March, the price of a U.S. domestic round-trip economy ticket rose 21% from a year earlier to $570, according to Airlines Reporting Corp., which tracks travel-agency sales.

So far, airlines have said the higher fares haven’t deterred bookings and they are hoping to recoup more of the fuel-cost increases as the year goes on.

Earlier this week, Trump said the current price of oil is “a very small price to pay for getting rid of a nuclear weapon from people that are really mentally deranged.”

Secretary of State Marco Rubio told reporters that if Iran got a nuclear weapon, the country would have more leverage to keep the strait closed and “make our gas prices like $9 a gallon or $8 a gallon.”

Trump has taken steps in recent days to bring the war to an end. Late Tuesday, the president paused a plan to help guide trapped commercial ships out of the Strait of Hormuz, expressing optimism that a deal could be reached with Iran to end the conflict.

Crude oil prices fell below $100 a barrel on Wednesday, after reports that Iran and the U.S. are working with mediators on a one-page framework to restart negotiations aimed at ending the conflict and opening the strait.

Sununu said Trump administration officials are conscious of the economic fallout from the war: “They get it…and I think that’s why they’re trying to get through the war as fast as they can.”

But he cautioned that it could take months for prices to return to prewar levels.

“Ticket prices won’t go down immediately” after the strait is fully reopened, Sununu said. “You’re looking at elevated ticket prices through the summer and fall because it takes a while for the prices to go down.”

Since the initial U.S.-Israeli attack in late February, Sununu has met in Washington with National Economic Council Director Kevin Hassett, representatives from the Transportation Department and senior White House officials.

A White House official confirmed that Hassett and Sununu have discussed the effect of increased fuel prices on the airline industry. The official said the conversation touched on how the industry can mitigate the impact of high jet fuel prices on consumers.

“The president and his entire energy team anticipated these short-term disruptions to the global energy markets from Operation Epic Fury and had a plan prepared to mitigate these disruptions,” White House spokeswoman Taylor Rogers said, pointing to the administration’s decision to waive a century-old shipping law in a bid to lower the cost of moving oil.

Rogers said the administration is working with industry representatives to “address their concerns, explore potential actions, and inform the president’s policy decisions.”

A Treasury Department spokesman pointed to Bessent’s recent comments on Fox News that the U.S. economy remains strong despite price increases. The spokesman said Treasury officials have met with airline executives, who have reaffirmed strong ticket bookings.

“We’re cognizant that this short-term move up in prices is affecting the American people, but I am also confident, on the other side of this, prices will come down very quickly,” Bessent told Fox News on Monday.

The war has already contributed to one casualty in the industry: Spirit Airlines. Company representatives have said they were forced to close the airline because the sustained surge in jet-fuel prices derailed the company’s plan to emerge from chapter 11 bankruptcy.

The Trump administration and Spirit failed to come to an agreement for the company to receive a financial lifeline of as much as $500 million from the federal government.

Transportation Secretary Sean Duffy has argued that the Iran war wasn’t the cause of Spirit’s demise, pointing to the company’s past financial struggles, as well as the Biden administration’s decision to challenge a merger with JetBlue.

Other budget airlines have also turned to the federal government for help since the U.S.-Israeli attack. A group of budget airlines last month sought $2.5 billion in financial assistance to offset higher fuel costs, and they separately wrote to lawmakers asking for relief from certain ticket taxes.

Trump’s Golden Age Begins With a Brutal Trade War

If tariffs evolve from a negotiating tactic to a new normal, economic and diplomatic costs to all of North America will grow

Trump’s real endgame

The near and far costs

Every action has a reaction

Administration officials have spoken to the airline industry, which has voiced concerns about the rising costs.