Since Donald Trump’s first term as the 45th President of the United States, his approach to trade — aggressive tariffs, protectionist rhetoric, and coercive deal-making — has sparked debate. In his second term, the question arises: Does Trump’s trade policy reflect established economic trade theories, or is it driven by instinct, political strategy, or a revival of outdated doctrines?
To answer this, we must examine his policies through the lens of trade theories (classical and modern), mercantilism, comparative advantage, and free trade principles and assess whether his actions align with or diverge from these frameworks.
Trump’s trade policies, both in his first term (2017–2021) and his second term, show similarities to mercantilism, an economic theory prominent in the seventeenth and eighteenth centuries. Mercantilism views trade as a zero-sum game, where a nation’s wealth is maximised by increasing exports and minimising imports, aiming to achieve a positive trade balance. Trump’s coercive tariff strategies reflect this mindset; they aim to reduce trade deficits by imposing high tariffs, discouraging imports, and protecting domestic industries.
During his first term, Trump imposed tariffs on solar panels and washing machines (30–50 per cent). Later, he imposed tariffs on steel (25 per cent) and aluminium (10 per cent) on most countries, and extended them even to allies like the European Union, Canada, and Mexico.
In his second term, Trump escalated this approach with a baseline 10 per cent tariff on most imports; country-specific tariffs range up to 50 per cent; on Chinese goods, he announced a staggering 145 per cent cumulative tariff. These measures align with mercantilist goals of reducing imports and boosting domestic production, as Trump has repeatedly argued that trade deficits—$1.2 trillion in goods in 2024—represent a net loss for the U.S. economy.
Trump’s brash rhetoric underscores this mercantilist bent. He claimed that countries like China, Japan, and others have been “ripping off” the U.S. through unfair trade practices. His focus on bilateral trade deficits as a measure of economic success, evident in his criticism of China’s $295.4 billion trade surplus with the U.S. in 2024, echoes mercantilist principles that prioritise surpluses over mutual gains.
However, modern economists argue that trade is not a zero-sum game and that bilateral deficits do not inherently indicate economic weakness. This suggests Trump’s approach may be misaligned with contemporary trade theory.
In contrast to mercantilism, David Ricardo’s theory of comparative advantage, developed in the early nineteenth century, posits that nations benefit from specialising in goods they produce most efficiently and trading for others, even if they could make those goods themselves.
This theory fortifies modern free trade agreements, which Trump has consistently criticised, calling the North American Free Trade Agreement (NAFTA) “the worst trade deal” and withdrawing from the Trans-Pacific Partnership (TPP) during his first term. Trump’s policies appear to reject comparative advantage in favour of self-sufficiency. For instance, his proposed 100 per cent tariff on foreign films announced on May 4, 2025, aims to protect the U.S. film industry, which he claims is “dying a very fast death” due to foreign incentives.
Similarly, his 17 per cent tariff on Israeli goods, 32 per cent on Taiwanese goods (excluding semiconductors), and 31 per cent on South African goods reflect a broad application of tariffs, even against allies, to incentivise domestic production. These actions contradict the idea that trade benefits all parties by leveraging comparative advantages, as they increase costs for consumers and disrupt global supply chains. Economists like Jason Furman, a former Obama adviser, argue that Trump’s tariffs ignore the mutual benefits of free trade, noting that most U.S. trading partners had low tariffs before Trump’s policies escalated tensions.
The Centre for American Progress estimates that Trump’s 2025 tariffs will raise U.S. consumer prices by 2.3 per cent, costing households an average of $3,800. This highlights the regressive impact of rejecting free trade principles. Furthermore, a study by the Peterson Institute for International Economics warned that Trump’s tariff-heavy approach could lead to a recession and cost millions of jobs — a risk that persists with his current policies.
Some proponents of Trump’s policies, including economist Stephen Miran, chair of Trump’s Council of Economic Advisers, suggest a grander strategy behind the tariff chaos: the so-called Mar-a-Lago Accord. This theory, outlined in a November 2024 paper, posits that Trump’s tariffs are a negotiating tool to force trading partners to reconfigure global trade dynamics. The plan allegedly involves demanding that countries with trade surpluses invest in U.S. manufacturing, revalue their currencies to make U.S. goods more competitive, and swap U.S. debt for interest-free “century bonds.”
Such a strategy, if successful, could align with mercantilist goals of reducing trade deficits and boosting domestic industry, but lacks grounding in modern trade theory, which emphasises mutual gains over coercive restructuring. Critics, however, view this as an overly optimistic interpretation of Trump’s erratic policy shifts. The inconsistent implementation—imposing tariffs, pausing them for 90 days, then threatening higher ones—creates uncertainty that undermines business planning and global trade stability.
The Nobel laureate Joseph Stiglitz argues that Trump’s approach adds a “permanent level of uncertainty” to cross-border transactions, eroding trust in trade agreements. Despite negotiations, Trump has failed to secure comprehensive deals with major partners like the EU, Japan, and South Korea, further suggesting a lack of strategic coherence. The economic impacts of Trump’s tariffs challenge his claims of revitalising manufacturing and reducing the national debt.
While the White House touts $100 billion in tariff revenue by July 2025, with projections of $300 billion by year’s end, economists warn of higher consumer prices and supply chain disruptions. The Yale Budget Lab reports that the effective tariff rate has soared to 16.6 per cent in 2025, the highest since 1910, with potential increases to 20.6 per cent if all threatened tariffs are implemented. These costs are borne primarily by U.S. importers and consumers, not foreign nations, contradicting Trump’s assertion that other countries pay the tariffs.
Moreover, Trump’s focus on goods overlooks the U.S.’s strength in service exports, such as finance and technology, which Stiglitz notes are critical to the modern economy. His policies risk alienating allies and pushing them toward alternative trade networks, as seen with Japan and South Korea exploring deals with China.
This misalignment with comparative advantage and free trade principles suggests that Trump’s approach is less about adhering to economic theory and more about political signalling to his base, which polls show supports his “America First” agenda despite only 39 per cent approving of his trade policies.
Does Donald Trump listen to trade theories? The evidence suggests he selectively embraces mercantilist ideas that align with his “America First” vision while largely dismissing comparative advantage and free trade principles. His policies reflect a belief that tariffs can restore U.S. manufacturing and reduce trade deficits, but they ignore the complexities of global supply chains and the mutual benefits of trade.
While some advisers frame his tariffs as a strategic masterstroke, the inconsistent implementation and economic costs point to a policy driven more by instinct and political posturing than by rigorous economic theory.
As the world grapples with the fallout, the long-term consequences of Trump’s trade war remain uncertain, but the risks of economic disruption and strained alliances are undeniable. The rule-based trade itself has come into question. Trump’s trade approach may emerge as a new theory that supersedes traditional rule-based trade, potentially finding its place in future textbooks.
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