CARROT AND STICK — At first blush, Trump appears to be upping the ante on tariffs during the presidential transition. In the past two weeks, he’s threatened 25 percent tariffs on Canada and Mexico, promised to add 10 percent to China tariffs already in place, and even promised whopping 100 percent duties on BRICs nations — developing countries including Brazil, South Africa, Russia, India, China — if they try to create a rival currency to the U.S. dollar. Those could be signs of a more aggressive tariff policy, as promised on the campaign trail. But read between the lines and some trade observers think the threats show that Trump could be turning away from his most disruptive tariff plans, like the 20 percent across-the-board tariff that he pledged repeatedly in the run-up to the election. In those Truth Social posts, Trump is using tariffs as a cudgel for some other issue — to get Canada to crack down on fentanyl, Mexico to stop the flow of migrants, or developing nations to continue using the dollar. And in each of those cases, nations quickly acquiesced to Trump’s demands, with Canadian President Justin Trudeau flying to Mar-a-Lago, Mexican President Claudia Sheinbaum holding a conciliatory call with Trump, and a South African government spokesperson decrying the “misreporting” that has led to the “incorrect narrative that BRICs is planning to create a new currency.” Notably, using tariffs as a negotiating tool is how establishment Republicans and Wall Street types have been hoping Trump would approach the issue for months — a “sin tax,” as Sen. Kevin Cramer (R-N.D.) called them, which can be quickly threatened, applied, and then removed if the trading partner changes their behavior. That’s the new form of soft protectionism in Washington. It’s how establishment Republicans who never liked tariffs are begrudgingly acquiescing to Trump’s love for them. And notably it’s how more Wall Street-aligned members of Trump’s team have spoken about tariffs in the past — Treasury pick Scott Bessent and Commerce nominee Howard Lutnick both said tariffs should be used as a bargaining chip shortly before the election. That’s also the most prevalent opinion among GOP lawmakers in the Senate – one of the last bastions of pro-trade Republicans – even Trump allies like Cramer. “I think [a negotiating tool] is the appropriate way to use tariffs — the easy way, the safest way to use tariffs,” said Cramer. “If you start using them as a sort of a general policy related to revenue that’s more concerning.” But it’s not how the hardcore populists view the issue. People like Trump’s former trade chief Robert Lighthizer think of tariffs not just as a cudgel, but also as an end in themselves — policies to be applied over the long term to reverse the U.S. trade deficit and provide a signal to investors to build factories in the United States. Protectionist elements close to Trump are already talking to House Ways and Means Chair Jason Smith about legislating tariff increases in the tax bill reauthorization next year, a move that would likely mean long-term duties. Lighthizer appears to be shut out of the administration, but that approach still has its adherents on Trump’s team, like U.S. Trade Representative pick Jamieson Greer, Lighthizer’s former chief of staff, and Peter Navarro, who Trump said this week would become White House trade czar. Those figures, however, could struggle for influence against administration members like Bessent and National Economic Council pick Kevin Hassett, also a more mainline economic thinker. Greer, while an able trade practitioner, lacks the personal relationship with Trump that Lighthizer had, and will be reporting directly to Lutnick at the Commerce Department, who the president-elect put in charge of the trade portfolio. And Navarro, though an avowed protectionist, had his ups and downs in the first Trump administration, routinely clashing with Wall Street-adjacent figures. In any case, they appear outnumbered by the more establishment figures in the most important economic posts of Treasury, Commerce and NEC. All of that has some Wall Street figures quietly optimistic that Trump’s bark will be worse than his bite on tariffs. Hedge fund billionaire Ken Griffin this week called Trump’s tariff threats “small ball” compared to other geopolitical issues, and macro researcher Marko Papic went further, saying in an email that despite the bellicose language, Trump is more likely to strike new deals than fully apply his campaign trail trade agenda. “Trump’s brash language might have led some down the fantasy that inflated tariffs are on the way,” said Papic, who provides investment research to asset managers worldwide. “In actuality, it’s all part of his ‘America First’ approach that will see him strike a trade deal with China, and perhaps conditional on the basis that their companies relocate their production facilities to the U.S.” That sort of negotiation is exactly what many foreign trading partners — particularly developing nations — are hoping for out of a Trump presidency. Trump is the “deal man” one Filipino official told POLITICO over the summer, and an economic official from a U.S. ally, granted anonymity to discuss the tariff issue frankly, said their government is hopeful Trump may be turning away from universal duties as well. “Trump might be utilizing tariffs to resolve non-traded issues this time,” said the official, “and therefore we may not end up seeing universal tariffs, but I think it is still too early to tell.” Of course, the two policy options — tariffs as a negotiating tool, versus tariffs for their own sake — aren’t mutually exclusive. Trump could put a blanket tariff in place and still up the ante in bilateral negotiations. And the opinions of his cabinet officials aren’t set in stone. Lutnick, for instance, has also opined that tariffs should replace income taxes, like in the Gilded Age, putting him on both sides of the new tariff divide. For now, the direction Trump will ultimately choose is up in the air – and that means the return of a fierce debate within his economic team that is likely to rage for years to come. Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com. Or contact tonight’s author at gbade@politico.com or on X (formerly known as Twitter) at @GavinBade.
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