Last October, whilst campaigning, Donald Trump posited that, to him, “the most beautiful word in the dictionary is tariff”. Despite my initial surprise that he hadn’t chosen his own name, this seemingly off-the-cuff statement provides a cutting insight into his approach to trade and economic policy.
Why tariff? And why not?
There is somewhat of a case for tariffs. The simple principle of protectionist economics is that, by instituting taxes on imported goods, the price of these goods will rise, making it easier for domestic industry to compete with foreign companies. In the American context, the idea is to encourage US manufacturing by raising the costs of cheap foreign goods from other countries, hopefully delivering a renaissance in industrial growth and jobs.
However, even in this simplistic model, there is one glaring issue. Prices. For this system to work, higher prices for everyday consumers are not only a side effect, but are necessary. To make US manufacturing compete with cheaper foreign goods, the price of goods has to be higher. It is that simple.
This brings into focus the harsh contrast between Trump’s bold promises on bringing down inflation (influential in his win last November) and these tariff plans. His claims that foreign companies will bear the cost of tariffs is self-defeating; if prices did not rise, domestic manufacturing will not become more competitive, and no gains will be made.
Furthermore, regardless of any debate around prices, the idea that tariffs are the route back to America’s industrial past is misguided. The US economy is deeply interconnected with neighbouring markets, meaning tariffs run the risk of cutting US firms off from their suppliers.
For example, Trump has introduced 25% tariffs on the import of steel and aluminium. However, as unfinished goods, these are likely to used by American companies in their own products, meaning tariffs will risk increasing their costs and pushing them out of business. Fundamentally, it will be US consumers that bear the cost of tariffs, putting further pressure on the cost-of-living in America.
Then what is Trump doing?
Economics clearly doesn’t come into it. Instead it is politics. Trump’s opening moves have been a cataclysm of policies aimed at pleasing his “America First” base, and enacting vengeance on those he believes have wronged him. This series of tariffs are continuing on the same theme.
Trump is the typical bully. Not only does he believe that threats of tariffs will draw concessions from allies and opponents alike, he revels in the ability to push around foreign governments, further evident the demands he had levied against Greenland and Panama.
At its heart, this campaign of punitive, unnecessary and seemingly sadistic protectionism will only hurt American consumers, US companies and allied economies.
Worst of all, the haphazard nature of where, what and who gets tariffed degrades America’s reputation as the linchpin of the international, rules-based economic and diplomatic order. If this global system collapses, international politics will continue down the dark path of national exceptionalism, zero-sum economics and international hostility.
This cannot be allowed to happen. If MAGA dominance in America is assured, it may fall to the rest of the free world, including Europe, to pick up the pieces.
