Donald Trump’s “Liberation Day” tariff policy, in which he declared trade war on the entire world simultaneously, was a bizarre and nonsensical undertaking, seemingly shaped only by the president’s own whims.
But since that initial announcement, the policy has been modified to bear at least a little bit more of a resemblance to what Trump’s more sophisticated advisers wanted.
That is: Now, the toughest tariffs by far are on China, and they’re paired with relatively much lower (but still significant) tariffs on the rest of the world while the administration seeks trade deals with various countries in hopes of forming a trade coalition against China.
Trump’s advisers hope that this policy will achieve several things at once: bring manufacturing (and manufacturing jobs) back to the US, address national security concerns about dependence on China, boost US exports, raise revenue to help address the US national debt — and maybe even pave the way toward a restructuring of the global currency system.
If all that sounds fanciful, that’s because it’s extremely fanciful.
Many of those hoped-for benefits are quite implausible and extremely difficult to achieve. Tariffs, meanwhile, bring extremely significant costs and downsides that could very easily wreck his team’s hopes of trying to achieve those lofty aims.
Furthermore, even Trump’s revised tariff policy isn’t at all well-tailored to achieve those aims — it’s still beating up allies we’d need against China, and targeting goods and industries it would make little sense to produce in the US. And his erratic implementation gets in the way even more by ruining businesses’ attempts to plan.
In practice, the only thing Trump is really doing is economic damage – by making things more expensive, chilling investment in the US, reducing confidence in the US’s stability, and casting a pall of uncertainty over everything.
What Trump’s relatively more sophisticated advisers say they’re trying to do
It’s hard to find any defenses of Trump’s actual “Liberation Day” as implemented that pass the laugh test, since the policy was so obviously incoherent and the repudiation by the markets was so scathing.
But there’s been much bipartisan agreement in recent years that something has gone awry in the global trading system, and that the US needs to do something about it.
Trump has his own peculiar instincts on what exactly the problem is (he is fixated on the US’s bilateral trade deficits with other countries, believing they signify other countries are beating us). However, some of his advisers and outside defenders — Treasury Secretary Scott Bessent, Council of Economic Advisers chair Stephen Miran, and ubiquitous pro-tariff conservative commentator Oren Cass — have tried to put forward a more intellectually sophisticated plan for tariff and trade reform.
They believe that the US needs to revitalize manufacturing at home, for a variety of reasons. There’s the “making things” argument: that being a global leader in manufacturing advanced technologies would be strategically and economically beneficial. There’s the jobs argument: that new manufacturing jobs would be good for Americans “left behind’ by globalization.
There’s also a national security argument: that the US’s dependence on China for critical goods, materials, and supply chains would be quite dangerous if the two nations come into serious conflict. The anti-China security case intertwines with the belief that they’re undercutting (or outcompeting) us economically.
The argument goes that tariffs, by making foreign goods newly expensive, will help incentivize a new US manufacturing boom that provides jobs for Americans and puts critical industries back under our control.
But to some Trump advisers, tariffs are just phase one in the plan. Truly revitalizing US manufacturing and exports, they say, requires much more sweeping change — and the key to unlocking this change is revaluing the US dollar.
In recent years, the dollar has been strong, which makes it more expensive for foreigners to purchase US-made goods. They argue that the ultimate endgame of the trade war should be to bring countries to the table to forge a global accord to weaken the dollar. This, they believe, could truly help US exports compete on a global playing field again. And a weaker dollar would have the added benefit of making the federal government’s sizable interest payments on its debt more affordable.
Will new high tariffs bring sunshine, lollipops, and rainbows to the American economy?
To put it mildly, completely restructuring the global economy is easier said than done.
But trying to do so mainly through tariffs seems extremely risky and likely to backfire.
In practice, the main thing tariffs do is make imports more expensive. That applies to imports that US consumers buy. But it also applies to imported parts and materials that US manufacturers use. So the price of US-made products will go up too.
Generally, when a lot of things suddenly get more expensive, people and businesses cut back their spending. Economic activity drops: growth and investment slow down. The stock market selloffs starting the day after “Liberation Day” — and the rally when Trump announced a 90-day pause on many tariffs the following week — show that investors are very scared about the impact on businesses.
The more sweeping and severe the tariffs, the more painful the economic damage will be. And it will be quite hard to conjure up a new US manufacturing boom if both investors and consumers are cutting back their spending due to recession fears.
The flipside to that is that the weaker the tariffs are and the more temporary they appear to be, the less likely they are to achieve the Trump’s team’s ambitious aims of revitalizing US manufacturing and reducing dependence on China.
It is quite difficult for the US to compete with poorer countries on manufacturing labor costs — exorbitantly high tariffs would be necessary to change this basic math. (That’s not even getting into the problem of who is going to take all these American manufacturing jobs.)
Furthermore, every time Trump blinks — with his 90-day pause, and with this weekend’s exemption of electronics from his incredibly high China tariffs — he feeds investors’ hopes that many of his tariffs are simply negotiating ploys and unlikely to be permanent. And if they’re not permanent, businesses won’t make permanent changes to their business models.
There are many other problems. If the US was all along hoping to build a global trade coalition against China, as Bessent claims, it is quite odd that Trump spent the first few months of his term making belligerent attacks on Canada, Mexico, and the European Union.
If the goal is to reshore advanced manufacturing to the US, it seems odd that we’ve slapped tariffs on heavily imported foods like coffee and avocados, or on Canadian building materials like steel and lumber, or that Trump advisers are talking about reshoring clothing and shoe manufacturing.
Just about the only thing that’s been going according to Trump advisers’ plan is that the value of the US dollar has indeed dropped. But it’s not dropping as the result of a new global agreement — it’s dropping because investors (accurately) view the US president as erratic and view the country as a less stable place for investment.
Terrifying investors and wrecking business confidence can indeed have a major impact on the global economy — just not in the way the Trump team wanted.
