President Trump's simultaneous trade war with Canada, Mexico, China and the European Union amounts to huge economic and political gambling. Americans endure months or years of economic pain in exchange for their distant hope of reindustrializing the American centre.
It is extremely dangerous. Recently, Trump has admitted that the US may be directed towards a recession supported by his economic agenda, despite confident campaign predictions that “we will be energized as if we had not been previously energised.” But publicly and privately, he has argued that “a little hindrance” in the economy and markets is a small price to pay to bring manufacturing jobs back to America.
His closest political partner is doubling his strategy. “President Trump's economic policies are simple,” Vice President J.D. Vice President J.D. Vance wrote on social media on Monday. “If you invest in America and create jobs, you'll be rewarded. You cut regulations and cut taxes. But if you build outside the US, you're your own.”
The last time Trump tried something like this, during his first term, it was a failure. In 2018, he puts 25% tariffs on steel and 10% tariffs on aluminum to protect America's national security, claiming that tariffs will ultimately create more jobs in the United States. Prices rose, with around 5,000 jobs temporarily rising nationwide. During the pandemic, some tariffs have been lifted, and today the industry is adopting most American numbers at that time.
But what was even more concerned were many studies that showed that one study lost tens of thousands of jobs (more than 75,000 in one study) in industries that relied on steel and aluminum imports. American steelmakers' production per hour fell, but manufacturing productivity across the US increased.
The experiments Trump is trying to do now are much bigger. And retaliatory tariffs imposed on US manufacturers – not only Europeans are aiming for Kentucky bourbon, but boats and Harley-Davidson motorcycles made in swing conditions such as Michigan and Pennsylvania are highly designed to cause pain where Trump supporters feel the most.
“If he's serious about what Trump says about sticking to these tariffs, he's stake his presidency on their success and the patience of the American people.
It's unlikely that Trump will be undisputed. He has been claiming tariffs for decades, and is sure to be sure of their power to end what he claims, in an era when the United States is bleeding by allies and enemy allies. Many of his top economic aides, led by Treasury Secretary Scott Bescent, have never been known in the past for advocating broad tariffs, but they all know that Trump's obedience to the geoeconomic view is at the price of holding a place of power and influence in the administration's economic club.
“The US will respond as long as other countries' practices do harm to our own economy and our people,” Becent said in a speech last week to the economic club in New York. “This is America's first trade policy.”
The reality is that Trump's argument over imposing tariffs is on the map as a series of business executives have never complained about the records after visiting the White House for a few weeks. Michael Fromman, US trade representative from 2013 to 2017 and now chairman of the Council of Foreign Relations, distills Trump's argument into three categories.
“When the president thinks about tariffs, he usually thinks about three things: leverage, revenue and reindustrialization,” Fromman said Wednesday.
“For now, leverage is working,” he said. Mexico and Canada came up with plans to reduce the amount of fentanyl across borders, even though they handed over a Trump program that had previously implemented but repackaged or revived at his request. Oddly, Canada is hit by some of the most difficult tariffs, despite the fact that most of the fentanyl that has barely come into the US across the Canadian border. “What he hopes is to see a complete collapse of the Canadian economy,” Justin Trudeau, the Canadian prime minister, said last week.
But Frommann argues that the White House is already seeing a decline in returns from that strategy. “You can do this or two and take people to the table,” he said.
Trump also loves the idea that tariffs bring revenue. In his inaugural speech, he spoke incrediblely about President William McKinley, who promoted the enormous tariffs in the 1890s, claiming that the period was the highest point of American economic policy. “Instead of taxing citizens on other countries, we will impose tariffs and taxes on foreign countries to enrich our citizens,” Trump said on Jan. 20. That's the bulk of money poured into our Treasury will come from foreign sources. ”
But again, facts are not always sorted that way. The US government brought in more than $60 billion in tariffs from China during Trump's first term, but also compensated American farmers who were hit by retaliatory tariffs imposed by Beijing. That cost is also almost costly.
The ultimate justification for Trump to provide tariffs is that they bring jobs to the United States. It is a concept rooted deep within his spirit and his political history. He shows little interest in examining empirical research that could make the painting muddy.
Of course, there is a reason why states trade with each other, just as Trump wants to see all the products made in the United States. Some people have comparative benefits for creating a particular product. Others are in another stage of development. And sometimes, when the country can move the ladder up, it doesn't want to produce low-tech products. The town in northern Boston ruled the country's shoe industry throughout the 1800s. Today they are well known for software startups, law firms and some of the most expensive properties in the country.
But in Trump's worldview, as he himself admitted in a 2016 interview, traditional manufacturing is important. He said the 1950s was his ideal when American manufacturing and power reigned at its highest level.
He is not impressed when he pointed out that the economists attacking his tariff plans could move car parts dozens of times along the border with Canada before it became more expensive due to tariffs in Canada. Or, the most advanced semiconductor refined designs are beamed back and forth to Taiwan Semiconductors, the world's most successful chip manufacturer, before the chip itself is produced in Taiwan.
One thing Trump and his predecessor, Joseph R. Biden Jr., have in common is his desire to bring that tip back to the US. Biden's approach is the Chips Act, which passed with bipartisan support and jumpstarted investments in the most advanced chip manufacturing plants, with more than $50 billion in federal funds. The concept actually began with Trump's first term, but at the end of his speech to Congress last week, he dismissed it.
“Your chips' actions are both scary and scary,” he told lawmakers. “We're giving hundreds of millions of dollars, but that doesn't mean things. They take our money and don't spend it.”
He concluded that the solution was tariffs. If the chips themselves are made in the US, they will not be tariffs.
His problem is one of the timing. Building a state-of-the-art chip facility takes years. (Intel was delayed for at least four years at one factory that it promised to be the first in Ohio to open in 2025 or 2026).
It is not clear whether voters are willing to wait long for results.
