America Burns Economic Bridges

Trump's Needless Tariff War

Trump’s first major foreign policy action is threatening tariffs and, by extension, trade wars with our closest partners. This tariff war will be a case-study in how quickly the United States can cause irreparable damage to its alliances and squander decades of goodwill. There is no economic benefit to levying these tariffs, nor is there any meaningful political gain to be made. Inflating the cost of virtually all imported goods while simultaneously shrinking the labor force through an aggressive, draconian rollout of immigration reform will drive up the cost of living for the average American. But how high of a cost will the American people pay for Trump’s muscle flexing, populist rhetoric, and public struggles to demonstrate strength? Judging from dire indicators from the market earlier this week, quite high.

Small and medium-sized economies are likely to cooperate with the United States and the president’s demands — or at least present the appearance of cooperation. Canada reaffirmed its pledge to strengthen border security and made a few negligible concessions to allow Trump to claim victory. Mexico, too, has offered symbolic appeasement efforts. It should be noted that certain elements of the agreements made by Canada and Mexico were based off of bilateral agreements signed months ago during the Biden administration. However, unlike small and medium economies, large economies like China and the European Union will be unflinching in protecting their interests and asserting their sovereignty. Their tariffs will likely escalate into a full-blown trade war, resulting in even higher prices. China has already responded with a 15% tariff on American goods.

For those paying attention, Trump actually looks weak. Suspending tariffs in response to a single day of market volatility sends the message that he lacks the stomach for even modest economic pain that would unsettle Wall Street and Main Street alike. This makes his threats look like bluffs waiting to be called.

We are entering an era of market volatility, where Trump’s pronouncements become market-moving events. Economically speaking, destabilizing vast sections of the economy when markets thrive on predictability and stability is not sound policy.

These tariffs and trade wars also make the United States appear unreliable. Our allies are now seeking to diversify away from this unpredictability, potentially even looking to adversaries like China as a more stable trading partner. China, in turn, is positioning itself as a safe bet and positioning itself to scoop up enhanced trade relations. In a worst-case scenario, we could undermine the very bedrock of U.S. economic prosperity: the dollar’s role as the world’s reserve currency. A new basket currency based on the Chinese yuan (RMB), that would be a dark — and not entirely unlikely — sign of the United States’ fading presence in the global economy. And for what? Trump postures as a strongman, but he has nothing to show for it when he folds early. This same dynamic extends to security policy, where both allies and adversaries are closely watching Trump 2.0. The danger lies in the high risk of accidents or miscalculations as the administration engages in needless confrontations.

As someone who wants the best for this country, I would like to see the United States secure better deals. A more strategic and resolute approach to economic and security policy is desperately needed. Instead, what I see is a TV showman pretending to be a strongman and engaging in remarkably bad deal-making.

Worst of all, this is just the beginning. While previous administrations focused on innovation and automation as the foundations for American economic growth, the second Trump administration has no plan for prosperity beyond spite and punitive measures against allies. This is already a disaster that will take years to repair.