America’s oligarchs are Trump’s Achilles’ heel

Through a flurry of executive orders, US President Donald Trump has spent his first weeks in office trying to dismantle the international order that the United States helped create after World War II. Under the banner of "America First," his administration has withdrawn from the Paris climate agreement, the World Health Organization, and the UN Human Rights Council. And now, it is poised to go further. A sweeping review of all multilateral organizations is underway to determine whether the US should stay or go.

Trump is also determined to upend the international trade system. Less than two weeks after taking office, he announced steep tariffs: 25% on imports from Canada and Mexico, and 10% on imports from China (on top of the levies already in place). Since granting Canada and Mexico a one-month reprieve in early February, he has signaled that the tariffs are "going forward," though seemingly with another month-long delay. He has also announced a 25% tariff on all steel and aluminum imports, and hinted at additional levies on automobiles, pharmaceuticals, and computer chips. Europe, too, could soon find itself in the crosshairs.

The consequences of the trade war Trump seems determined to stoke could be severe, and not just because of the sheer volume of trade that is at stake. Supply chains today are deeply integrated across borders, accounting for around 50% of intra-regional trade. In many cases, components cross borders multiple times before final assembly, so paying a 25% tariff each time an input crosses a border would quickly ratchet up costs.

Consider Mexico, which has surpassed even China as America's largest trading partner in goods. Beyond disrupting supplies of Mexican avocados (a well-known example), tariffs would have serious repercussions on an agriculture sector that supplies 63% of US vegetable imports and 47% of its fruit and nut imports.

The automotive industry – one of Mexico's key economic sectors, employing more than a million people and contributing around 5% of GDP – would also take a major hit. A recent S&P Global report shows that Mexico is now the largest source of US light-vehicle imports, outpacing Japan, South Korea, and Europe. Nissan, for example, sources 27% of its US sales from Mexico, while Honda sources nearly 13%, and Volkswagen 43%.

What should Mexico do? When Trump imposed tariffs on America's neighbors in 2018, Mexican authorities responded strategically by targeting products from politically significant US states, slapping tariffs on apples, bourbon, cheese, cranberries, pork, and potatoes. But this approach has limitations, especially given the vast size of the US economy relative to its neighbors.

Still, Mexico, Canada, and Europe have leverage. America's Achilles' heel is its highly internationalized oligarchy: a small group of ultra-wealthy individuals whose fortunes depend on access to global markets. This vulnerability gives foreign governments influence.

The most effective countermeasure is simple: tariffs for oligarchs. Countries should tie market access for foreign multinationals and billionaires to fair taxation. As soon as Trump follows through with tariffs on Canada and Mexico, those countries should retaliate by taxing US oligarchs. In other words, if Tesla wants to sell cars in Canada and Mexico, Elon Musk – Tesla's primary shareholder – should be required to pay taxes in those jurisdictions.

Of course, this strategy is explicitly extraterritorial, since it applies tax obligations on foreign actors in exchange for access to local markets. But rather than fearing extraterritoriality, countries should embrace it as a tool for enforcing minimum standards, curbing inequality, preventing tax evasion, and promoting sustainability.

Unlike traditional tariffs, an oligarch tax targets those who benefit the most from globalization: billionaires and the corporations they control. It shifts the economic conflict from a battle between countries – which fuels nationalist tensions and economic retaliation – to one between consumers and oligarchs.

Moreover, this approach could trigger a virtuous cycle. Countries with major consumer markets could collect taxes that multinationals have dodged elsewhere, gradually eroding the appeal of tax competition. It would become pointless for firms or individuals to move to low-tax countries, because the savings would be offset by higher taxes owed in countries with large consumer markets. The race to the bottom would soon be replaced by a race to the top.

Trump's return to the White House carries alarming implications. But it also presents an opportunity. This is a moment to rethink international economic relations, calmly but radically. The best response is a new global economic framework that neutralizes tax competition, fights inequality, and protects our planet. Under such a framework, importing countries would enforce tax justice beyond their borders, ensuring that multinational corporations and their billionaire owners pay their fair share.

If it's a trade war Trump wants, consumers in Mexico, Canada, Europe, and beyond should unite to ensure that Musk and his fellow oligarchs feel the cost.

Sketch: TBS

Gabriel Zucman is Professor of Economics at the Paris School of Economics and École Normale Supérieure, Summer Research Professor of Economics at the University of California, Berkeley, and Director of the EU Tax Observatory.

Disclaimer: This article first appeared on Project Syndicate and is published by a special syndication arrangement.