Trump's Tariffs

we have questions

You’re probably exhausted from all of the tariff turmoil last week. I’m exhausted too.

Part of it is the frenzy of media coverage, which exhausts more than it illuminates. Left-leaning cable outlets and newspapers are running out of adjectives for “stupid.” The pro-globalization Economist is curled up in a ball in the corner rocking back and forth. Commentators who for over a decade have argued that Trump is an idiot, corrupt, or destructive, have carefully assessed the trade war to conclude that Trump is an idiot, corrupt, or destructive. So there’s not much analysis going on to help dazed folks like us figure out what’s going on.

For example, you might wonder: what might be the administration’s possible goals with the tariffs, are the tariffs are a good instrument for achieving those goals, or does the trade war create negative side effects (diplomatic, security, and otherwise)? But instead of analysis we get ad hominem.

If you’d like more than that, read on. To be clear, I have no answers: only questions.

ARE WE IN CRISIS?

In response to Trump’s tariffs, many Americans are delighted that Trump is Finally Doing Something, while many are horrified that he’s breaking a global economic system that has served America well. As my Dartmouth colleague, the brilliant trade economist Douglas Irwin, told the New York Times, “There’s no societal consensus that there’s a big problem with trade, and yet we have one person, the president, radically changing the direction of U.S. trade policy.”

Thus the first thing we want to understand is, just how bad is the current trade situation for the United States such that we need to go to the mattresses over it? As PBS queried, what’s the evidence that our trade partners are ripping us off? Critics of the tariffs argue that the United States’ GDP has grown, our economy is thriving, unemployment is low, we lead the world in innovation, and so on. Many economists note that the World Trade Organization has many failings – but (as another terrific colleague, Robert Staiger, argues) still serves as a good basis for future trade policy.

On the other hand, we hear from many commentators (and from 77,303,568 American voters who returned Trump to the White House) that they think the system is broken. Proponents of this view argue that neoliberal ideas about trade sent American jobs overseas, hollowed out US industry, and ravaged families and communities. “I think we have a problem,” argues economist Oren Cass, “particularly for the right of center that sold this idea of a rising-tide-lifts-all-ships model and we all march forward together into the brave new future. What people are seeing instead is that some people got to march ahead into the brave new future and a lot of folks did not.”

No wonder the current conversation is so confusing – Americans can’t agree whether there’s a problem that needs solving.

Even if one grants that there’s a problem, we’re not sure how tariffs fix it. I’ve heard two different arguments: one arguing that tariffs are being used coercively, and the other arguing that they will re-industrialize the US economy.

COERCION

Let’s start with the coercion hypothesis. Trump often talks about his tariffs this way. “These countries are calling us up, kissing my ass,” he said, “They are dying to make a deal.” Indeed, the whole thing does have a New York real estate, game-of-chicken sensibility that feels very much his style.

If the administration is using tariffs to coerce, the question becomes why – namely, toward what end? Perhaps the goal relates to trade: pressuring countries to remove non-tariff barriers that are blocking US exports from accessing their markets.

But Trump may be seeking to promote a range of other outcomes. In a terrific discussion at ChinaTalk, Tanner Greer argues that the tariffs are aimed at having leaders come to Trump to ask, “’Okay, what do we need to do to get closer to that 10% and not be at whatever higher percentage?’ For some countries, like Cambodia,” says Greer, “I don’t know what they could really do in a trade sense. They could maybe say something like, ‘We’ll also kick the Chinese out of the Sihanoukville naval base…’”

So the goal of the tariffs likely vary by country. Indeed, early on, the administration slapped tariffs on Mexico and Canada with the stated goal of pressuring their governments to restrict illegal immigration and the flow of fentanyl into the United States. (Commentators observed that this didn’t seem to make much sense on the Canada side.)

Much of the criticism about Trump’s tariffs has been along the lines of, “doesn’t he understand this is painful for American consumers?” But any coercive activity creates pain not only for the target but for the one doing the coercing. For example, when European governments imposed sanctions against Russia after its invasion of Ukraine, European households had to pay higher energy bills. Coercion is painful. In this view, the hundreds of articles and op-eds arguing “but tariffs hurt Americans!” are non-sequiturs. Indeed, coercion is painful. The pertinent question is whether it advances national goals.

The Trump administration claims that the tariffs are working: that 70 or more countries are flocking to the Oval Office to negotiate. If so we want to know, what has US coercion achieved? What concessions have our trading partners agreed to and how do those new policies promote U.S. exports, create jobs, or advance other interests? We need to understand what we’ve gained in order to evaluate whether the tariffs – the higher prices borne by American consumers and manufacturers, the uncertainty that’s bad for businesses, and the outrage of allies with whom it’s in our interest to maintain calm relations – have been worth those gains.

RE-INDUSTRIALIZATION

Another argument is that tariffs will encourage the re-industrialization of the United States. On the campaign trail, Trump promised a “manufacturing renaissance.” “Under my plan,” he said at a rally, “American workers will no longer be worried about losing your jobs to foreign nations.”

How would tariffs encourage reindustrialization or reshoring? There may be a coercive element here (that is, countries or firms agreeing to build plants or other investments in the United States in exchange for tariff relief or exceptions to export controls, as seen in the case of Nvidia).

Otherwise, tariffs would promote reshoring by raising the price of foreign products relative to domestically produced ones. If tariffs make foreign steel more expensive than the domestic steel, Americans will buy steel from Pennsylvania instead of Pudong. Rising prices are thus precisely the mechanism through which tariffs succeed: a feature, not a bug. Yes, Americans pay more for things but overall, the administration is arguing, the country benefits from better jobs, stronger communities, and so forth. In this view, having pundits condescend, “doesn’t Trump understand prices will go up?” is another non-sequitur.

If reshoring is the motivation for tariffs, this raises other questions. We wonder to what extent they will bring manufacturing jobs back to the United States—or would reshoring just mean more jobs for the robots that today do most of the work? After all, economists (prominently Irwin) argue that most manufacturing job loss was caused not by trade but by automation. Things get even more complicated as scholars also remind us (see essays by Christian Parenti and Mark Blyth) that the challenge of reindustrialization is connected to the US dollar’s role as global reserve currency. (Paging Jonathan Kirshner: we need you on this.)

WORTH IT?

Understanding the magnitude of the problem, and understanding how tariffs might fix it, is essential because many observers rightly note that tariffs seem to be causing a lot of instability that is bad for America.

The Trump administration may see trade turmoil as actually supporting its agenda vis-à-vis the European allies. In this view – in addition to speeches and Signal chats by Trump, JD Vance, and Hegseth, in addition to the Zelensky Oval Office melee – the tariff fracas demonstrates concretely that the United States has changed: so European allies should not keep relying on it as they have done for so long. If Washington wants Europeans to take care of Europe, in other words, the tariffs give them another shove out of the nest.

But Washington also seeks cooperation with its allies in many realms. Since the Biden administration, the US asked some of its allies to limit their exports of semiconductors and related technologies to China. In doing so, Washington is asking allied governments to tell their own firms to sacrifice sales and profits – which affect jobs and future innovation. This is a big ask. Asking allies and partners to do this while savaging their economies with tariffs is a vastly bigger ask and jeopardizes their cooperation – which undermines US goal of maintaining a technological lead over China’s military.

The tariffs against China raise further concerns. Although the Biden administration also hit China with tariffs and export controls, the Trump administration has escalated the trade war, imposing 145% tariffs against Chinese goods. China has retaliated by raising tariffs on American goods to 125%; Beijing has also imposed export controls on rare earth minerals and magnets that are vital for the US defense, energy, and automotive sectors. Observers are wondering to what extent the spiraling trade war will destabilize broader US-China relations, or prevent the United States from achieving other key goals – indeed, the Trump administration’s key goals – such as getting China’s cooperation to restrict the flow of fentanyl into the United States.

To my confused students, readers, family, and friends: I’m confused too. These recent weeks have been dizzying, and we haven’t begun to figure out their effects. And many of those whose job it is to explain this stuff to us aren’t helping: by dismissing tariffs as Trumpian idiocy or by doubling down on neoliberal arguments. We need free trade theorists to explain that these ideas – about the free movement of goods, money, and people – haven’t caused the job losses, deindustrialization, and political disruptions that we’ve seen in the United States and across Europe. And we want to hear why the often-touted solutions to those disruptions (transfer payments or job retraining) haven’t worked so far but will in the future. We need experts to help us figure out, given where our country stands right now – with all of our divisions and challenges, with all of our strengths and advantages, with AI threatening to take the jobs that the robots haven’t already taken – how best we can move forward.