The current tariff war news immediately made me think of Clashing Over Commerce, a book that brilliantly maps out the long history of U.S. trade policies and their impact, I read during my Econ101 days. One recurring theme in trade wars—and negotiations in general—is the concept of self-induced pain as leverage, especially when dealing with allies. It’s counterintuitive but often effective: by imposing costs on a friend, you create pressure for them to act, all while signaling that you are willing to endure discomfort yourself.
If history has taught us anything about economic brinkmanship, it’s that tariffs are a double-edged sword—capable of securing concessions but also triggering unintended consequences. To understand this dynamic, let’s examine cases where tariff strategies have succeeded and where they have backfired. Then, we’ll analyze the current U.S.-Canada-Mexico-China tariff war to assess its potential impact on negotiations.
When Tariffs Worked: The Success Stories
1. The 1980s U.S.-Japan Auto Tariffs: A Win for American Manufacturing
What happened? In the early 1980s, the U.S. was losing auto manufacturing jobs due to an influx of cheaper Japanese cars. To counter this, President Ronald Reagan’s administration imposed “voluntary export restraints” (effectively tariffs by another name) on Japanese vehicles.
Outcome:
- Japan responded by opening car manufacturing plants in the U.S. (e.g., Toyota, Honda, Nissan).
- The U.S. auto industry gained breathing room, allowing companies like Ford and GM to restructure.
- It was a rare case where tariffs led to job creation without triggering major retaliation.
2. The 2018-2019 U.S.-China Trade War: A Partial Win for U.S. Negotiations
What happened? Under President Donald Trump, the U.S. imposed tariffs on hundreds of billions of dollars worth of Chinese goods, citing unfair trade practices and intellectual property theft.
Outcome:
- China agreed to the Phase One Trade Deal (2020), committing to purchase an additional $200 billion in American goods, particularly in agriculture and manufacturing.
- U.S. tech and manufacturing firms gained stronger intellectual property protections.
- However, many tariffs remained, and supply chain disruptions were exacerbated.
Key Takeaway: Tariffs worked in forcing China to the table, but they also disrupted global markets and raised costs for American consumers and businesses. The win was incomplete.
When Tariffs Backfired: The Costly Failures
1. The Smoot-Hawley Tariff Act (1930): Turning a Recession into a Depression
What happened? In response to the Great Depression, the U.S. enacted massive tariffs to protect domestic industries. More than 20,000 imported goods faced steep price increases.
Outcome:
- Trading partners (Canada, Europe, etc.) retaliated with their own tariffs.
- U.S. exports plummeted by 60%, worsening the Depression.
- It became a cautionary tale of how tariffs, if used excessively, can choke off global trade and economic recovery.
2. Trump’s 2018-19 Steel & Aluminum Tariffs: More Harm than Good
What happened? Aiming to protect American steel and aluminum producers, the U.S. imposed 25% tariffs on imported steel and 10% on aluminum, affecting allies like Canada and the EU.
Outcome:
- Retaliatory tariffs from Canada and the EU hurt U.S. farmers, automakers, and whiskey producers.
- Manufacturing companies reliant on steel (e.g., carmakers, construction firms) faced higher costs, leading to job losses in those sectors.
- After two years of economic strain, the U.S. negotiated revised deals but lifted many of the tariffs.
Key Takeaway: Protecting a single industry (steel) hurt broader industries that depended on that supply chain, showing that tariffs must be targeted rather than broad-based.
Analysis: How the Current Tariff War Could Influence Negotiations
With President Trump reintroducing tariffs on Canada (25%), Mexico (25%), and China (10%), three potential negotiation pathways emerge:
1. Leverage for Renegotiation of Trade Agreements
- The USMCA (U.S.-Mexico-Canada Agreement) was seen as a major win for the U.S., but Trump could be using tariffs to push for further modifications—perhaps reducing Mexico’s manufacturing advantages or increasing U.S. agricultural exports.
- With China, Trump may aim for a Phase Two Trade Deal, pressing for deeper reforms in state subsidies and technology transfers.
🔍 Risk: If tariffs remain too long, retaliatory measures from China, Canada, and Mexico may force U.S. companies to find alternative trade partners, weakening America’s leverage.
2. Domestic Political Strategy: Appealing to Key Voter Bases
- Tariffs can be used as a political tool to rally key voter blocs, particularly in manufacturing-heavy states (Michigan, Ohio, Pennsylvania) and farming regions (Iowa, Wisconsin, Nebraska) that have suffered from foreign competition.
- The United Auto Workers (UAW) union has already praised the tariffs, arguing they help restore fair competition for U.S. workers.
🔍 Risk: Higher prices on consumer goods (electronics, food, cars) could backfire politically if inflation spikes.
3. Using Economic Pressure to Influence Other Policy Goals
- Trump has linked tariffs to fentanyl trafficking, demanding that Mexico and Canada do more to curb the flow of drugs into the U.S.
- This tactic might work in the short term, but Mexico and Canada could argue that economic penalties do not address the root causes of drug trade (i.e., U.S. domestic demand).
🔍 Risk: If Canada and Mexico refuse to link trade and drug enforcement, the tariffs may be viewed as coercion rather than negotiation.
Conclusion: Will the Tariffs Move the Needle?
📌 Best-Case Scenario: Tactical Victory
- If the U.S. secures better trade deals with Canada, Mexico, and China, and tariffs are lifted quickly, this could be a short-term pain, long-term gain situation.
- If Mexico increases fentanyl enforcement without damaging trade relations, Trump could claim a win.
📌 Worst-Case Scenario: A Self-Inflicted Wound
- If tariffs stay too long, they could slow down economic growth, fuel inflation, and provoke deep resentment from allies.
- Retaliatory measures could hurt American exporters more than the intended targets.
📌 Middle Ground: Strategic Adjustment Required
- The U.S. needs to clarify the timeline and objectives for these tariffs—are they temporary tools for negotiation, or long-term trade barriers?
- A more multilateral approach (coordinating with allies against China rather than alienating them) would likely be more effective.
Lessons in Negotiation: What Tariff Wars Teach Us About Strategy
At their core, tariff wars are high-stakes negotiations played out on a global scale. They involve power dynamics, leverage, retaliation, and, most crucially, the art of knowing when to push and when to pull back. While nations battle over trade imbalances, supply chains, and political influence, businesses and leaders can extract timeless lessons on negotiation strategy from these economic confrontations.
1. Leverage is a Tool, Not a Strategy
One of the most common negotiation mistakes—whether in trade or business—is mistaking leverage for strategy. Tariffs are often framed as a means to an end, a way to extract concessions. But leverage alone doesn’t guarantee a good deal—it merely brings the other party to the table.
Business Application:
- If you’re negotiating a partnership or pricing contract, don’t just rely on threats (e.g., withholding resources, price hikes, exclusivity clauses).
- A strong strategy combines carrots (incentives for cooperation) with sticks (potential consequences for non-compliance).
- Example: Instead of only pressuring a supplier with volume reductions, offer long-term contract security in exchange for better pricing.
2. Retaliation Can Be Costly—Pick Your Battles
A key takeaway from past and present tariff wars is that retaliation escalates conflicts, often creating unintended consequences. When the U.S. imposes tariffs, partners like Canada, Mexico, and China retaliate, leading to market instability and higher costs for all parties involved. In negotiations, pushing too hard can backfire.
Business Application:
- If a client, partner, or competitor makes a tough move, not every action requires an equal reaction.
- Instead of immediate retaliation, assess long-term consequences—will countermeasures solve the issue or deepen the problem?
- Example: If a vendor suddenly raises prices, instead of immediately switching suppliers (which could disrupt operations), use the opportunity to renegotiate terms or explore value-adds like better service, faster delivery, or bundled pricing.
3. Clarity and Communication Are Critical
One reason tariffs often create uncertainty is that their objectives are not always well-defined. Are they designed to protect domestic industries? Force better trade agreements? Address unrelated issues like drug trafficking? When negotiation goals are unclear, confusion reigns, and trust erodes.
Business Application:
- When negotiating, be explicit about objectives. Are you seeking better terms? A stronger partnership? Greater market share?
- Ambiguity can lead to misinterpretation and resistance. A well-communicated goal ensures that all parties understand the stakes and possible resolutions.
- Example: If a company wants to renegotiate supplier contracts due to cost pressures, it should frame the conversation around shared goals (e.g., maintaining a long-term relationship, ensuring mutual profitability) rather than just imposing unilateral demands.
4. The Power of Timing and Exit Strategies
One of the most significant pitfalls of tariffs as a negotiation tool is not knowing when to stop. The longer tariffs remain, the greater the economic damage—and the harder it becomes to remove them without political fallout. Similarly, in business, pushing too far in a negotiation can create resentment, leading to breakdowns in trust and long-term relationships.
Business Application:
- Define success before you start negotiating—what’s the best-case scenario, the acceptable compromise, and the walk-away point?
- Have an exit strategy in case negotiations stall or backfire.
- Example: When negotiating with investors or clients, set benchmarks for success—at what point does pushing further risk losing the deal? If negotiations become unproductive, be ready to pivot, rather than stubbornly holding out for unrealistic demands.
5. Relationships Matter More Than Short-Term Wins
Trade wars often put long-term alliances at risk. Canada, Mexico, and the U.S. are deeply integrated trade partners, yet tariffs have strained these relationships. Business negotiations work the same way—burning bridges for short-term gains can have lasting repercussions.
Business Application:
- A negotiation is not just about winning; it’s about setting the stage for future cooperation.
- Maintain a balance between firm negotiation and relationship management—because today’s adversary may be tomorrow’s key partner.
- Example: A company negotiating a tough contract renewal should avoid making the relationship adversarial. Instead of issuing ultimatums, frame the discussion around shared benefits and future opportunities (e.g., “How can we structure this in a way that benefits both of us long term?”).
Final Thought: The Art of Playing the Long Game
Tariff wars, like all negotiations, remind us that power must be exercised wisely. Effective negotiators—whether in government or business—understand that the goal is not just to dominate but to create agreements that lead to sustainable success.
The best negotiators:
✅ Use leverage sparingly but effectively.
✅ Pick battles that are worth fighting.
✅ Communicate objectives with clarity.
✅ Know when to push and when to step back.
✅ Prioritize long-term relationships over short-term victories.
At the end of the day, negotiation is not just about securing a deal—it’s about building an ecosystem where both parties can thrive. And that’s a game worth playing wisely.
Final Thought: Tariffs can be a powerful negotiation tool—but only when used with surgical precision, clear exit strategies, and a well-communicated goal. Otherwise, they risk becoming a hammer looking for a nail, with unintended economic casualties along the way.
