The realpolitik of Trump’s tariffs

T-DAY – or Tariff Day – is coming this week. Or not. We simply won’t know until it’s here, given that President Donald Trump changes his mind about policy daily. But assuming reciprocal tariffs do go into effect, it’s worth thinking about them as Trump himself probably does. 

Economists might fret about their inflationary effects, but Trump isn’t motivated by classical economic theory. To the extent that he thinks about tariffs in purely economic terms at all, he would look at the evidence of the increased tariffs against China during his first term, between 2018 and 2019, and note that, even though these represented a material adjustment in rates, they had minimal inflationary effect.

As Stephen Miran, the chair of Trump’s Council of Economic Advisers, put it in his now infamous report, “A User’s Guide to Restructuring the Global Trading System”, the result of these tariffs was that “the dollar rose by almost the same amount as the effective tariff rate, nullifying much of the macroeconomic impact but resulting in significant revenue. Because Chinese consumers’ purchasing power declined with their weakening currency, China effectively paid for the tariff revenue”.