Mohamed El-Erian: US Tariffs Promises Gains for America in Short-term, Less Favorable in Longer-term

Economist Mohamed El-Erian warned on the X platform that the United States’ tariff policies may achieve short-term gains but could harm its economic capacity in the long term.

El-Erian said that given the relative strength of the United States and the relative weakness of many other countries, this approach achieves gains for America in the short term. But the key question is whether these gains are immediate or after other countries try to resist the tariffs and fail.

He added that these long-term prospects are less favorable for the United States if tariffs become a “repeated game.” The more it resorts to tariffs, the stronger the incentive for other countries to reduce their economic and financial dependence on the United States and accelerate the fragmentation of an international economic system that has historically served America well.

He explained that using trade as a weapon achieves immediate gains for the United States, but in the long term it risks undermining America’s central position in the global economy while encouraging other countries to seek alternative systems that bypass it.

US President Donald Trump on Saturday ordered hefty tariffs on Canada, Mexico and China, demanding they stop the flow of fentanyl and illegal immigrants into the United States, sparking a trade war that could undermine global growth and stoke inflation.

What insights does Game Theory offer on the U.S. tariff policy approach? I can think of at least two:

1. Given the relative strength of the U.S. and the relative weakness of many other countries—both cyclically and structurally—the approach promises gains for America in the…

— Mohamed A. El-Erian (@elerianm) February 1, 2025

Mexico and Canada, the United States’ two largest trading partners, immediately vowed to impose retaliatory tariffs, while China said it would challenge Trump’s decision at the World Trade Organization and take other “countermeasures.”

In three executive orders, Trump imposed a 25% tariff on Mexican and Canadian imports, with the exception of Canadian energy imports, which will be subject to a 10% tariff, and a 10% tariff on goods from China, effective Tuesday.

Trump has vowed to keep the tariffs in place until what he has called a national emergency over fentanyl, a deadly opioid, and illegal immigration into the United States ends. The White House has offered no other criteria for what might meet Trump’s demands.

In response to concerns raised by oil refiners and Midwestern states, Trump imposed a 10% tariff on energy products from Canada, while Mexican energy imports face the full 25% tariff.