Trump's tariffs: what is behind them and will they work?

[Petroleum economist]

Dr James Scott - Reader in International Politics, Department of Political Economy, King’s College London

US President Donald Trump has introduced a wide range of tariffs on trading partners, based on the idea that the US has been taken advantage of by trading partners and deindustrialised by low-cost imports. But are these claims true? And will the tariffs deliver on Trump's ambitions for the USA?

“To me, the most beautiful word in the dictionary is tariff, and it’s my favorite word”, said Donald Trump in 2024. He wasted no time following his inauguration on 20th January 2025 in announcing a 25 per cent tariff on Canada and Mexico, which he said were taking advantage of the US. “I look at some of these agreements”, he continued, “and I say ‘Who would ever sign a thing like this?’. Fun fact: the US-Mexico-Canada (USMCA) trade agreement was signed by Donald Trump in 2020.

And here is the central problem with trying to make sense of what the Trump administration is doing on trade. There is precious little coherence to the pronouncements he makes, and little exposition of precisely what the administration wants to achieve. Some of the claims are obviously nonsense, but are endlessly repeated by the administration regardless. An example is the assertion that the tariffs will be paid by foreign governments, not consumers – a claim that should be self-evidently false. Or the stated justification for targeting Canada being the flow of fentanyl and migrants across the border, when both are insignificant.

And a second problem is the lack of direction. Tariffs are announced, then postponed, then put in place, then partially cancelled again, then increased when affected countries retaliate, and so on in an endless confusion of mixed messages and disorder.

This factor has prompted the question whether the Trump approach to tariffs is (i) strategic – in which the chaos is a deliberate ploy to make trading partners more willing to offer concessions, fearful of what is coming next from an president that is carefully crafting a reputation for unpredictability; or (ii) just chaos with no real underlying strategy, being made up largely on the hoof by a president who does not know much and is uninterested in the complexities of public policy. Alan Beattie at the Financial Times examined this question, coming down on the side of the latter option.

Pitch to voters
Trade has played a central role in the whole Trump phenomenon. His central pitch to voters centred on the idea of the US having been taken advantage of by trading partners and deindustrialised by low-cost imports. The large US trade deficit is a particular subject of Trump’s ire. Both problems he sees as being caused by a set of trade agreements that worked against US interests, coupled with cheating by trade partners.

Is Trump right? The size of the US trade deficit is often seen as a cause for concern, albeit not universally. Critics argue that countries with large trade surpluses – primarily China and Germany – cause unemployment within deficit countries, since they are employing people to produce ‘excess’ goods beyond those they are able or willing to consume themselves. Conversely deficit countries are importing things that could have been produced domestically, creating domestic jobs. Whether or not this is a genuine economic problem, it certainly has become a political issue. Trump’s tariffs are supposedly aimed at addressing this concern, with a view to balancing trade.

However, it is pretty much universally agreed that they will not work. Macroeconomics tells us that a trade deficit is caused by an imbalance in savings and investment, plus the difference in government spending and tax revenue – i.e. the fiscal balance. The US has a trade deficit because it runs an enormous fiscal deficit – currently around 5.5% of GDP and far higher than other rich countries. If Trump truly wanted to move the US toward a trade balance, he would need to tackle this issue. While Elon Musk and DOGE are supposed to be reducing government spending, they are unlikely to make significant headway since achieving significant spending reductions will necessitate cuts to politically sensitive areas like Medicare and Medicaid. Furthermore, Trump appears to be committed to tax cuts that will exacerbate the fiscal imbalance. As such, tariffs targeted at specific countries, notably China, may affect the bilateral trade balance but, as happened in Trump’s first administration, that trade just gets displaced elsewhere, leaving the overall trade balance unaffected because the fundamental cause – the fiscal deficit – has not changed.

On manufacturing jobs, the verdict is, I would argue, more complex. It is undeniable that the era of globalisation from around 1980 onwards has had a detrimental impact on low skilled workers. Among those who did not attend university, wages fell by around 20 per cent between 1980 and 2016 in real terms. The ‘golden age of capitalism’, from the end of WWII to around 1973, in which everyone got richer across the income distribution, has given way to a world of rising inequality, wage contraction among the low-skilled (and increased wage growth at the top end) and ever greater precarity of employment. Some of this is to do with technological changes, but it is also a result of deliberate policy interventions that prioritised the interests of capital over labour. Outsourcing manufacturing jobs, privileging consumer prices over jobs and subjecting low-income workers to ever greater competition with workers elsewhere – these are all policy choices, not inevitabilities. Trump’s political genius was to tap into the resentment and anger that these economic and policy changes have propelled.

Manufacturing has changed
This is a real economic problem. Will Trump’s policies reverse it? His response has centred on returning manufacturing jobs to the US through the imposition of tariffs, but this is very unlikely to work. Manufacturing has changed, with production now spread across multiple countries in so-called ‘global value chains’. Moving whole supply chains back to the US is going to be prohibitively expensive, result in rising consumer prices and make US-produced goods internationally uncompetitive. The model of manufacturing that underpins Trump’s approach simply hasn’t existed for the best part of 40 years, and is not coming back.

Moreover, the loss of manufacturing jobs is much more a result of increased productivity than foreign competition. The Center for Economic Policy and Research has done a rough calculation on this that is a useful yardstick. If Trump were to succeed in balancing US trade exclusively through expanding manufacturing, they would need to increase production by around $906bn. This equates to an increase of 12.6% of current manufacturing production. Since roughly 12.8 million workers are currently employed within manufacturing, a 12.6% increase would lead to about 1.6 million new jobs. While this may sound significant, it is only around 1.0% of the current total US non-farm employment.

In short, manufacturing jobs are not coming back. Once upon a time the majority of people were employed in agriculture, but increased farm productivity put an end to that. The same is now happening in manufacturing. Reversing this trend is no more likely than great swathes of workers returning to farming.

Bringing this together, there are huge dangers going forward. However chaotic Trump’s trade policy might be, there are identifiable objectives that he wants to achieve, but his policies for doing so are very unlikely to work. When this is coupled with his personality trait of always doubling down, and the almost religious following among the MAGA faithful, those policy failures can only lead to more resentment, more volatility and more chaos

[ChuckGeb]

Not only that but where are all the workers coming from?

My view is this was a massive sucker punch to get better trade deals around the world, a classic Trump negotiating tactic that has had dire (hopeully) immediate unintended economic consequences on the US citizens. We will see what rabbit he can pull out of his hat over the weekend before it causes irreversible harm (PAIN) to US.

[allen46]

I disagree with a lot of what Dr. Hames Scott says. I think he has an agenda and it is not one that supports the USA. From the Kings College website "Dr James Scott is a Reader in International Politics in the Department of Political Economy. He works primarily on trade governance, particularly with regard to developing countries in the World Trade Organisation"
He claims that DOGE "are unlikely to make significant headway without cuts of Social Security and Medicare". This is a totally false statement and sounds just like a far left Democrat. Our federal government needs to reduce headcount by at least 50% and there is at least $1 trillion of annual waste fraud and abuse that should be eliminated. So with him making this kind of statement, I cannot believe anything he says.

I could go on and on. For example he says manufacturing jobs are not coming back and states that that it is because manufacturing has changed and that there are "global value chains".

He is nothing more than an ivory tower academic who probably never worked a day in his life.

[aja57]

"My view is this was a massive sucker punch to get better trade deals around the world, a classic Trump negotiating tactic that has had dire (hopeully) immediate unintended economic consequences on the US citizens."

Chuck ,this was more than a negotiating tactic. We have 9T of debt due by late summer and 15T over the next year. Janet Yellin, an expert in economic and financial stupidity refinanced debt last year by utilizing 1,3,6 month and one year T bills instead of 10 yr Treasuries. . More than just the "Art of The Deal" or your "sucker punch", this was done to drive long term rates down so as to refinance the government using 10yr Treasuries. A 100 basis point drop saves 500 billion in financing interest over ten years. US debt interest (1T) to government revenues (5T) of 20% is what one one expects in emrging market countries. Germany for example, has interest payments as a percentage of government revenue under 2%.

I disagree with the author of the article that makes this is a very risky gamble, that consumers will see higher prices from tariffs alone. It's also somethin PE has said in the comment section on multiple occasions. This is not true on an aggregate level, bc tariffs drive lower demand bringing down global price levels. Commodity prices are falling(boy, do we know that) in dollar terms, money is flocking into treasuries not just because of uncertainty, but the market pricing in lower demand / lower inflation. The average buyers have scarce budget. Tariff doesn’t change that. If producers want to keep selling, they will have to cut prices. Consumers should overall see lower prices in the economy + many foreign producers will bear the cost if they can ( China CCP will backstop their producers), because otherwise there is no demand for their products. And America makes up 34% of world consumption.

[aja57]

Early poll on the public’s acceptance of Trump’s tariffs.

https://www.breitbart.com/politics/2025/04/06/nolte-media-fail-trump-job-approval-rises-4-points-to-53/

[Petroleum economist]

False tariffs claims
As has been demonstrated over the weekend, the Trump speech on the tariff announcements was filled with economic nonsense. The import tariffs shown by President Trump were not tariffs charged to the US but the ratio of the trade deficit/total imports. US surplus on services was conveniently left out. Countries with whom the US has a trade surplus were set at an arbitrarily 10% tariff.
Virtually every economist of note has pointed out the nonsense.

Retaliations and trade wars
Tariffs as announced by President Trump will harm the US and the world.
China responded over the weekend with 34% counter tariffs and an export stop on rare earths. Others are to follow.
President Trump has started a trade war. Trade wars have only losers and no winners. Inflation will soar and GDP will fall, both in the US as well as in the rest of the world
Republicans in congress should wake up, act fast, re-take control and put an end to these non-sense tariffs.

Stock market
The stock market lost 6 trilling on Thursday and Friday and will add another 3 trillion or so on Monday based on pre-market indications.
Who is winning? Who is cheering? Trump popularity increasing?

[aja57]

If you are not in the stock market like the average Joe, none of this is affecting you. If you are ,then you are paying the price for US debt refinancing of 9 trillion coming due this summer. Do you want debt refinancing of the U.S. government with long Treasury bonds, refinancing with short term T bills like the idiot Janet Yellin did running the Treasury like a third world country or do you want bankruptcy something of which our President is an expert?
Tariffs are otherwise a side show. Unless you are China.

[Cliff_N]

Bob Lighthizer who developed the replacement for the NAFTA agreement with Mexico and Canada discusses the growing trade imbalance:

"The total GDP of the United States and Europe collectively comprises more than 40 percent of global GDP. Europe therefore serves as a major consumer within the global trading system, and the European Union notably imports more from China than it does from the United States. This relationship, while critical geopolitically, is becoming wildly unbalanced economically. The US goods trade deficit with the European Union has more than doubled in recent years. In 1997, soon after the WTO was created, the United States had a $17 billion trade deficit in goods with the European Union. By 2001, it had grown to $65 billion. Ten years later (2011) it was $100 billion. Ten years after that (2021) it was $220 billion. If one wants a policy that leads to balanced trade overall, one must examine the European trading relationship. President Trump, while mindful of the importance of these countries as allies, was always concerned with this growing imbalance."

In this video he discusses the transfer of 23 Trillion dollars in wealth from the USA to the rest of world. Bob makes the point that trade imbalances should not go on for decades. Trump started complaining about this in 1987. Video Link: https://tuckercarlson.com/tucker-show-bob-lighthizer

Lighthizer makes the point that when you stop manufacturing, you lose innovation. When the decades long trade imbalances started, the USA led in 57 of 64 categories of innovation, we are down to 3 according to The Australian Strategic Policy Institute.

China is the primary target of the recent moves on tariffs. More from Lighthizer's book:

"China’s accession to the WTO in 2001 began a decades-long redistribution of wealth from the United States to China. In 2001, the goods and services trade deficit between the United States and China was only a little more than $80.6 billion. In 2021, that deficit was $339.2 billion. On an aggregated basis, between 2001 and 2021, the United States imported $5.39 trillion more in Chinese goods and services than it exported—feeding into China’s economic rise.

China’s export-driven, mercantilist growth strategy—by all measures—succeeded. In 2001, China’s GDP stood at $1.3 trillion (USD). In 2021, that number was about $17.7 trillion—a growth of $16.4 trillion. Over the same period, exports’ contribution to China’s GDP rose from $272 billion in 2001 to about $3.5 trillion in 2021, fed in large part by weak, unbalanced US trade policies."

Reference: Lighthizer, Robert. No Trade Is Free: Changing Course, Taking on China, and Helping America's Workers (p. 134). HarperCollins Edition.