Experts debate the impact of Trump’s tariff policies on Washington’s international relations.
“Adults in a Room” is a series in collaboration with The Stimson Center’s Reimagining US Grand Strategy program. The series stems from the group’s monthly networking events that call on analysts to gather virtually and hash out a salient topic. It aims to give you a peek into their Zoom room and a deep understanding of the issue at hand in less than the time it takes to sip your morning coffee without the jargon, acronyms, and stuffiness that often come with expertise.
President Donald Trump has put tariffs at the center of his trade policy, imposing sweeping tariffs on US allies and adversaries alike. In doing so, the Trump administration has quickly upended the global trading system and escalated an already simmering trade war with China.
May’s Reimagining US Grand Strategy roundtable brought members of the foreign policy community together to discuss the Trump administration’s approach to tariffs and economic statecraft more broadly. A guest speaker opened by outlining the second Trump administration’s use of tariffs, including the objectives and differences from Trump’s first term, as well as the long-term outlook for US economic competitiveness. The group then discussed and debated Trump’s economic statecraft, the possible unintended effects of the tariffs, and the role of ideology in the administration’s trade policy.
Nikolas K. Gvosdev, Director, National Security Affairs program, Foreign Policy Research Institute
One of the problems that besets the Trump administration’s economic statecraft is the lack of an overarching organizing principle. There are four distinct streams of thought as to how the United States should wield the economic tool of power and for what purposes.
The first approach — call it the “revenue-driven” strategy — is that other countries pay far too little for access to the American market. The logic behind imposing tariffs is that if the US is the major driver of profit for other countries and their companies, they should be willing and able to contribute more to defray the costs of that access. In the first term, the Trump administration tried to link trade access to matters of defense spending by allies and partners. Now, the preferred tool seems to be the levying of tariffs — where levies on imports are imposed and the US Treasury has access to a major new revenue stream — which in turn can reduce the tax burden on American citizens and corporations, help reduce the size of the US debt, and provide a pool of capital for a proposed US sovereign wealth fund. Tariff advocates argue that foreign firms should be prepared to absorb the bulk of any tariff expense rather than US consumers and should be happy to do so to retain their connection to one of the world’s largest and most dynamic markets.
A revenue-driven approach is largely neutral on whether Americans buy domestic or foreign — consumer choice is left largely intact. But the second group — the “industrializers” — hope to impose tariffs at levels which make foreign-produced goods less competitive for US consumers, and to create incentives for domestic substitution in sourcing of raw materials and components as well as final production and assembly. While the industrializers and revenue-drivers can both agree on the policy tool of the tariffs, they part course over the final objective. For the industrializers, tariffs should re-incubate domestic industries and with that, over time, the tariffs will generate far less income for the Treasury (and thus for any sovereign wealth fund) — but will be replaced by a more robust US manufacturing sector.
Another set of approaches starts from a recognition that the US has developed an insecure and unstable dependence on the People’s Republic of China for everything from critical minerals and rare earths to all sorts of component parts (especially for electronics, automobiles, and drones) and even for finished goods such as pharmaceuticals. This dependence, in turn, gives Beijing influence over US decision-making because the US economy does not have ready alternatives that can match the price and quantity Chinese suppliers can guarantee.
The third approach is to conceptualize American economic interests as being centered around a North American core — that with sufficient investment in infrastructure and capabilities the US can source what it needs from the hemisphere and can incentivize the shift of lower-wage/lower-skill industries away from Asia and Africa to locations closer to home (and, as an added bonus, jump-start economic growth and opportunities in the places which currently are the primary sources of millions of migrants to the United States). A hemispheric approach also reduces US exposure to long, vulnerable supply chains stretching across two oceans (and which the Houthi crisis in the Red Sea once again brought to the fore).
The final approach, which has its roots in previous administrations, is the allyshoring/friendshoring model. This is driven in part by the realities of the investment timeline and the calendar demands for procurement. It will be a decade or more before reindustrialization policies could lead to a domestic shipbuilding industry capable of producing even a fraction of what China’s yards deliver to both civilian and military customers. Yet key US partners — Japan, South Korea, Italy, and the Scandinavians — all have robust industries that could rapidly produce the hulls needed, while US firms could add the final value-added touches. (This would not be unlike the Airbus proposals a decade ago for the European firm to build the airframe for a replacement tanker for the Air Force, with final components completed by US manufacturers).
The problem is that each of these approaches can end up contradicting the other in the absence of a guiding strategy. Major tariffs imposed on partners can invalidate the allyshoring concept. US consumers who expect a high material standard of living as reflected by access to a wide supply of goods may be prepared to accept price increases in support of revenue-generation tariffs but be less interested in high rates that make domestic alternatives fewer in quantity, lower in quality, and higher in price. The foreign policies undertaken by the Trump administration in its first six months also makes achievement of a hemispheric-focused economic strategy, especially with regards to Canada and Mexico, much harder to achieve. Meanwhile, for US businesses and workers, it makes little difference to their bottom line if they end up losing jobs and customers to US allies like Germany or Japan as opposed to firms in China.
In the end, US economic statecraft, like other aspects of US foreign and defense policy, still remains bewitched by the allure of wishcasting: that we can compel others at little cost or risk to ourselves and that other countries have no ability to exploit our vulnerabilities. Wishcasting in economic policy as in other areas will continue to generate a strategy-policy mismatch.
MacKenna Rawlins, Research Associate, Defense Strategy and Planning, Stimson Center
Sweeping tariffs, threats, pauses, and hollow deals all characterized the first Trump administration’s approach to economic statecraft — and the second Trump administration has just amplified this from China to the rest of the world. The playbook begins with the president issuing higher tariff rates before negotiations take place, seemingly to force the trade partner to the table for a deal. However, as we have seen with China, there is no going back to the original tariff level, and the deal doesn’t necessarily need to come to fruition, as the administration often has to back down from the high tariff rate in response to market disruptions. Financial Times columnist Robert Armstrong has created an acronym to explain this behavior: TACO theory, which stands for “Trump Always Chickens Out.”
During his first administration, Trump issued tariffs on hundreds of goods imported from China. These actions were rolled out in four lists released between June 2018 and August 2019, bringing the total value of goods affected by a higher tariff to approximately $300 billion. Throughout 2019, the administration made several adjustments — raising tariff rates and expanding the lists of affected goods, as well as pauses or exemptions. The justification for these changes evolved over time: Originally justified as a response to Chinese forced technology transfers and unfair trading practices, the administration later justified them as a response to Chinese retaliatory tariffs and, ultimately, retaliation for China “retreat[ing] from specific commitments agreed to in earlier rounds.”
In August 2019, Trump told reporters he was going to delay tariff increases over concerns about the impact on holiday shopping. Then, just before Christmas in 2019, Trump paused expected tariff hikes due to progress in negotiations with China. Eventually, the two sides reached the Phase-One deal on Jan. 15, 2020, which was touted as “a momentous step — one that has never been taken before with China — toward a future of fair and reciprocal trade, as we sign phase one of the historic trade … righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers, and families.” But the promises proved empty, and no “future of fair and reciprocal trade” emerged. The tariffs on Chinese goods remained in place, and China never followed through with its commitment to purchase $200 billion worth of goods and services from the US. Instead, the Biden administration renewed Trump’s tariffs and issued higher tariffs on select goods.
So far, the second Trump administration has used the same playbook — rush economic policy out the door, threaten to worsen the pain, issue pauses in response to market volatility, and ultimately end with higher tariffs than where things began. Because the administration is restructuring government revenue to come from tariffs rather than taxes, a higher tariff rate must be established. In negotiating terms, Trump is asking high, threatening to go higher, and settling somewhere above market price. The result is always higher tariffs on a broad range of goods, causing US industries big and small to seek exemptions for goods they cannot source domestically. The pain is always felt by consumers, who face high prices or empty shelves. The winners are domestic producers who can charge higher prices — but even they face higher prices for precursor materials needed in their production — and the government from the revenue collected. However, the net effect of increasing tariffs is negative, as the harm to consumer well-being outweighs the benefits to producers and the government. This is especially true when countries retaliate with higher tariff rates or export controls.
Ultimately, using the same tactics repeatedly may result in less successful negotiations, as countries threatened with higher tariffs will simply wait for Trump to back down when Walmart’s shelves are empty, or the stock market takes a nosedive. Countries that face decreasing exports to the United States as tariffs deter some buyers from purchasing, might be incentivized to retaliate with tariffs on American goods, as we’ve seen from China and Canada. Because the administration’s hands are tied with stock market volatility, the options to up the ante are slim. Thus, both countries have issued higher tariffs, with the US unwilling to back down all the way, and consumers continue to pay higher prices. More uncertain is how consumers will adapt to this pattern. At the end of the cycle, they are worse off than where they started — and the administration can only tell the people to eat the pain for so long.
Melanie Sisson, Senior Fellow, Foreign Policy, Strobe Talbott Center for Security, Strategy, and Technology, Brookings Institution
In an article on the wildfires that burned through northern California in 2022, there is a sublime quotation from climate futurist Alex Steffen about the mind’s ability to cope with radical change. Discontinuity — denial — he says, is the period during which one must adjust to the fact that “the world as we thought it was, is no longer there.” This process, he says, culminates in the crushing realization that “the experience and expertise you’ve built up over time cease to work” and that “you are unprepared for what has already happened.”
There cannot possibly be a more apt description of what the Trump administration’s approach to political economy has done to the collective state of mind of America’s national security class. For 80 years, the US has been the heavyweight in a liberal international economic order designed to stimulate growth through free trade abroad and free markets at home. Tariffs, protectionism, industrial policy, and all other such interventions were doctrinally avoided for their observably negative effects on macroeconomic indicators: GDP, stock performance, wealth generation, corporate profits, and so forth. And so Trump’s tariffs — the 10% minimum, the eschatological Liberation Day tablet, the constant will-he-or-won’t-he put them on, keep them on, take them off — have been met with no shortage of confused, disbelieving, and outraged commentary. Much of this reduces to the conclusion that Trump’s policies are too harmful to be sustained, that he will have no choice but to remove the tariffs once they begin to bite, hard and sharp, at the hand of the domestic constituency that feeds him.
But this conclusion elides the fact that the Trump administration hates the old international economic order. That Trump, and many of those around him, believe the free trade regime has leached the US of its status as an industrial powerhouse and encouraged an “addiction to cheap labor” that keeps blue collar wages low and stymies technological innovation. That the administration rejects the idea that aggregate metrics are a meaningful way to measure whether or not the economy is working. That the administration, therefore, has purposefully broken the free trade regime and has no intention of trying to rebuild it.
What instead? There are indicators that the administration’s desire is to refactor the domestic economy so that it is less consumptive and more collectivist, creating conditions that favor traditionalist associations: families, communities, and congregations. Economic activism — protectionism and market intervention — is necessary to establish such a system. Trade policy will support the reindustrialization of America so that general labor and vocational jobs are less migratory and more available. Immigration policy and border security will reduce the supply of labor to favor native employment at higher wages. Manufacturing inefficiencies, no longer papered over with cheap labor, will instead render the invention of new, technological solutions. These solutions will make industrial jobs less physically demanding — less laborious — and therefore more productive and “dignified.” Tax and regulatory policies will give industry easier access to, and more say over, factors of production, most especially energy.
This might, of course, be an overinterpretation of available evidence. Even if the administration’s ambitions are lesser, however, or even if this is the vision but it fails to fully materialize, there will be no return to the status quo ante. The world as we thought it was, is no longer there.
John Allen Gay, Executive Director, John Quincy Adams Society
Many in Washington’s national security community are confused by President Donald Trump’s approach to tariffs. Why has the administration imposed 10 percent-and-up tariffs on virtually every country on the map — even on close partners with few or no tariffs on the United States? Answering this question requires understanding changes on the right, and how much of the new right has come to see the free-trade-minded consensus that ascended in both parties in recent decades. The strongest supporters of tariffs on the right want a broader shift in the ethos of American politics.
To these conservatives, flinging open the doors to global trade was a disaster for the American working class. It shuttered factories and kicked workers from stable jobs with decent pay down to unstable, low-pay retail jobs. With the loss of good jobs came social breakdown. The people who built this country were told to hit the bricks. They became a remainder in the formula of the global economy; if they wanted to compete, they could learn to code, enter the gig economy, or move away from the town their family had lived in for generations to somewhere more dynamic.
This story does not deny that there are winners from international trade. The upper and upper-middle classes won the most. Those who could still earn money — the people who owned capital, managed it, or had stuck themselves remora-like to it — could now fill their homes with cheap junk from China. Efficiencies like these would keep their retirement portfolios going up.
Hence, for the newly ascendant camp on the right, tariffs are intended to protect and to drive reshoring. We will make things in America again. Globalization’s losers will now be the winners: Good jobs for the working class will come back. And the winners will now be the losers: those upper-middle-class kids will have to settle for two dolls instead of 30.
Yet it would be a mistake to see this view of trade in isolation from other issues. There is a deeper critique here that connects the tariff policy to many other areas. The new current sees the post-Cold War bipartisan political elite as having embraced a view that America is a vessel for a set of ideas rather than a community of people with a shared history. At the same time, in their view, that policy elite believed that a rising GDP and a rising stock market meant America’s economy was working for everyone.
Thus, that elite embraced mass immigration, even if that undercut the wages of the working class. The new current on the right does not believe there are “jobs Americans won’t do.” It believes there are jobs that Americans will not do at that wage. Employers will not raise wages if they can instead import cheaper laborers from abroad. Similarly, Vivek Ramaswamy, despite being a new right figure, lost his opportunity to co-lead the Department of Government Efficiency in the wake of a December 2024 tweet arguing that American culture “has venerated mediocrity over excellence” for decades, warning that “a culture that celebrates the prom queen over the math olympiad champ, or the jock over the valedictorian, will not produce the best engineers.” Thus, said Ramaswamy, “top tech companies often hire foreign-born & first-generation engineers over ‘native’ Americans.” He called on American parents to embrace the tiger mother approach, warning that “If you grow up aspiring to normalcy, normalcy is what you will achieve. … ‘Normalcy’ doesn’t cut it in a hyper-competitive global market for technical talent.”
The new current’s reaction was instructive: They held that American workers should not have to live in an environment that makes such brutal demands of them, and should not have to be willing to outwork a desperate immigrant to get a job. This would lower American labor and wage standards to those of the countries those immigrants were so desperate to leave.
The new camp connects the elite ethos to foreign policy, too. If America is a nation defined by its ideology of democracy rather than by its people, place, and history, it makes more sense to send American soldiers on crusades for democracy, the rules-based international order, etc., even if the concrete US interest in a particular case is limited. And the people that fight and die in America’s wars, in the new current’s view, come disproportionately from globalization’s American losers — a fact made plain by anyone who pays attention to where billboards urging enlistment show up.
The new current would also argue that the tariffs will ultimately make America safer, despite present frictions. They would highlight the defense manufacturing shortage created by the Ukraine war. In their view, a deindustrialized US will be unable to meet the material demands of a major war. Conversely, a robust, tariff-protected American manufacturing ecosystem will be fertile soil for defense industrial work. Peacetime defense budgets will become more efficient, since the government will not need to pay as much overhead in already-existing commercial ecosystems. And American industry will be ready for a World War II-style mobilization, should major conflict threaten.
Finally, this connects to the culture wars. In the new current’s view, hot-button cultural issues have become a substitute for a more materialist politics. (The new current’s intellectuals often appreciate the old-school Marxians who pioneered this line of critique.) The culture wars have also become a gatekeeping mechanism, allowing social elites schooled in politically correct behavior to exclude and look down upon the common citizen, especially the “poorly educated.”
This ideological movement aligns with the changing composition of the two parties’ bases. Trump’s 2024 voters included nearly half of union households, and many unions declined to endorse his rival, Kamala Harris. Trump won people with incomes under $50,000; Harris, people with incomes over $100,000. He won non-college-educated white Americans, as before, while non-college-educated Black and Hispanic Americans reduced their support for Democrats. Some of the new current’s figures have taken to calling the Trump GOP a “multiracial working-class coalition,” both to describe these changes and to mock the failure of the Democratic Party to hold on to its Obama-era base.
Whether one agrees with the new trend on the right or not, the foreign-policy community would do well to recognize that there is a major emerging current in American political thought that is ideologically committed to tariffs and to reducing immigration. This current also seeks to turn American foreign policy away from primacy and liberal hegemony — to say, with Merle Haggard, “There’s things to be done all over the world / But let’s rebuild America first.”
To read the column as it was originally published by Inkstick, click here.