Trump is determined about tariffs, unfazed by electoral considerations or market pressure
He believes that tariffs would help in “levelling the playing field” by revoking international trade deals that worked to the disadvantage of the American people
MUCH of the earlier discussion of President Donald Trump II’s trade policies reflected a sense that the president wanted to use the threat of tariffs as leverage over trade partners.
At the same time, pundits referred to the experiment with tariffs during his first term in office, when, among other things, he imposed 25 per cent tariffs on steel and 10 per cent on aluminium in 2018, only to lift them later.
It’s true that the president continues to employ tariffs as leverage, as in the case of Mexico and Canada as well as China to press those governments to reduce the amount of fentanyl crossing their borders.
But such thinking overlooks the more important elements in the president’s embrace of tariffs – that he doesn’t regard them as part of tactical moves but as being central to his geo-strategic and geo-economic vision; that he is very serious about them.
Indeed, President Trump seemed to have modelled his trade policies after those of former president William McKinley, having referred to the 19th-century leader as a “great president” who “made our country very rich through tariffs”, dubbing him as the “tariff king.”
President McKinley – who referred to himself as “a tariff man, standing on a tariff platform” – helped pass in 1890 legislation that raised the tariffs on most imported manufactured goods to about 50 per cent.
Some economic historians challenge the notion that those tariffs created wealth and made America rich in the late 19th century. Instead, they attribute the economic growth of that period to technological advances, including the increased availability of electricity, and the growth of railroads, that helped advance industrialisation.
But then, tariffs, as President Trump likes to point out, were a much greater source of tax revenue in those days and were responsible for more than half of the revenue generated by the government. In a way, tariffs helped fund the federal budget.
“Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens,” President Trump proclaimed in his inaugural address on Jan 20. “For this purpose, we are establishing the External Revenue Service to collect all tariffs, duties,” he declared. “It will be massive amounts of money pouring into our Treasury, coming from foreign sources.”
But the fact is that, contrary to President Trump’s contention, tariffs were not being paid by foreign companies that shipped products but by Americans purchasing foreign goods.
Moreover, Federal spending made up less than 3 per cent of the nation’s gross domestic product during the McKinley presidency. By contrast, the US$6.8 trillion that the federal government spent in its most recent fiscal year comes to 23 per cent of GDP, most of it going to servicing the national debt, military spending and entitlement programmes such as Social Security, Medicare, Medicaid and food stamps.
Not to mention that the Trump administration would have to use the revenues from the tariffs to compensate Americans who have to pay the costs of the retaliatory tariffs imposed on, say, the country’s farmers.
In addition to providing revenues, President Trump believes that tariffs would help in “levelling the playing field” by revoking international trade deals that worked to the disadvantage of the American people.
“Access to cheap goods is not the essence of the American dream” is how Treasury Secretary Scott Bessent put it during a recent address defending tariffs. “The American dream means that any citizen can achieve prosperity, upward mobility and economic security,” he stressed.
Tariffs are designed to correct that, Secretary Bessent said, by ensuring that the trade system rewards “ingenuity, security, rule of law and stability” rather than “wage suppression, currency manipulation, intellectual property theft, non-tariff barriers and draconian regulations”.
In that context, President Trump believes that the liberal trading system has helped demolish America’s manufacturing sector and generated unemployment among blue-collar workers. Tariffs will correct that and help return the manufacturing industries to the US.
Evidence that seems to contradict these assumptions, in particular the notion that tariffs are import taxes that would be paid by the American consumer, don’t impress President Trump.
As economists put it, by imposing tariffs, the Trump administration would be taxing American manufacturers who must then shift some of the burden to consumers in increasing prices.
But the way President Trump sees it, low-cost imports may benefit consumers but hurt producers who end up reducing production and in the process, cutting manufacturing jobs.
But the question is whether tariffs would, indeed, help bring the manufacturing jobs back home and convince foreign producers to relocate to the US and create new jobs.
Even under the best-case scenario, it would take time for such a strategy to work, and meanwhile as prices rise and signs of market truculence and even an economic recession become more evident, the American public could end up punishing President Trump and the Republicans in the 2026 midterm election.
But then President Trump, who would not be running for another term, may have decided that he would be willing to pay the short-term costs of irate financial markets and voters in order to achieve the transformation, he believes, would result from the tariffs.
