"Understanding" Trump's tariffs

Donald Trump's "liberation day" has arrived. And the tariff changes have lived up to the expectations created. They will have a strong to very strong impact depending on the country and the level decreed. And now we will have to wait and see how other countries will react, as they will be hard pressed to avoid symmetrical retaliation; letting it slide would only encourage Trump to accentuate his abusive attitude. This remains to be seen; and those interested can find sufficient details and specific effects in the economics pages of this publication.

I want to approach the issue from another angle: the tariff changes announced by Trump express a conception of the world and the role of the United States that fuels Trump's various policies. True, there are many eccentric figures around him who have already put on memorable performances. However, there are also articulate and well-prepared ones, such as Treasury Secretary Scott Bessent, or the Trumpian trade guru, Peter Navarro, professor of economics at UC Irvine, who are the concocting agents of the new economic policy.

These protagonists believe in US self-sufficiency, which should ideally include Canada and Greenland, and a degree of control over Latin America as its backyard. They no longer see Russia as a relevant global player, nor Europe, and they see how Europeans and Russians understand each other or argue with each other as a purely regional factor, secondary to the US. Asia is indeed a priority region for preventing a future global hegemony by China; incidentally, that is why the intensity of the tariffs imposed on Japan (24%), South Korea (25%), Vietnam (46%), and Taiwan (32%) has been somewhat misleading.

However, this conception expresses a political position that isn't always hegemonic in the US, but always relevant: isolationism; the idea that foreign trade entails conflict and causes more harm than good, because the world takes advantage of the US. It's not too different from what anti-globalists everywhere think; whether on the right or the left, they all share the idea that the community itself is exploited through trade.

Hence the economic sense of Trump's tariff policy. Everyone is clear that it will harm economic growth in the US. But as a criticism, it's equivalent to that of mechanisms like the minimum living income, because they harm growth. Those who design trade restrictions or minimum living incomes know that they harm economic growth. But economic growth is often not the basic guideline for economic policy; there are other very important things. That's also why this criticism is harmless to the US government.

The new tariffs are part of a broader policy. That's why the key phrases are "tariffs are tax cuts" and "tariffs are new jobs." Beyond the rhetoric and fake news Trump's administration clearly knows that tariffs are taxes borne by importers and consumers of the state that imposes them. The key, however, is that they project the tariffs will contribute, they say, $600 billion annually to the US treasury. That's more than they collect from corporate income tax. And these are resources that, with the addition of Musk's spending cuts—more dramatic than substantive—will allow them to finance tax cuts that, they believe, will boost the economy and create jobs.

This policy, like all others, will have winners and losers in the US. The losers will be lower-income people, who will be most affected by the price increases that tariffs will bring, because they consume a larger share of their income and will bear the price increases. Kimberly Clausing and Mary Lovely explain in Why Trump's Tariff Proposals Would Harm Working Americans The highly regressive nature of tariffs compared to other taxes. Those who will gain the most will be those who pay the most from the taxes that will be cut: those with the highest incomes and wealth. This is something that Republican leaders are very happy about.

How Trump's economic strategy plays out in the short term will depend largely on the interaction between inflationary pressures from the new tariffs and the Federal Reserve's interest rate decisions, which have dampened the prospect of rate cuts. Trump needs them to refinance the U.S.'s massive public debt more cheaply.

In the longer term, who knows! The reaction of economic agents to policies could be frustrating for those who designed them (case in point: the regulatory twists and turns of the rental market in Catalonia). After all, it wouldn't be surprising if, as happened under Reagan, the situation ended with greater inequality, as is predictable, and also with greater deficits and public debt, as is paradoxical given the rhetoric of the protagonists. We'll see, as long as there's time.