Trump’s Brilliant Economic Brinkmanship
On April 2, 2025, or “Liberation Day,” Trump’s announced tariffs went into effect. This included a 10% across-the-board tariff on all imported goods, reciprocal tariffs with each country according to the United States’ trade deficit, and a special package of higher tariffs on China (currently up to 145%, with China imposing a 125% retaliatory tariff). Trump later placed a 90-day pause on reciprocal tariffs in order to re-negotiate trade deals with various countries, but the China tariffs remained. This made it clear that China was the real target: the 10% tariff was an attempt to box China out and prevent her from rerouting exports through other countries on the way to America; and the reciprocal tariffs worldwide were meant to drive other countries to lower their tariffs, rebalance trade with America, and reinvest in American industries. As Mike Sabo has explained, Trump’s strategy is comprehensive in its rebuke of market fundamentalism, in prioritizing geopolitical, national security, and military matters, and in reviving domestic markets and relieving the pressure faced by middle and lower-class Americans.
Early American Tariffs
Anyone slightly informed on the tariff debate knows that today’s advocates of tariffs often point back to the prevalence of tariffs in the Early Republic. Indeed, one of the first bills passed by Congress was a tariff rate, known as the Tariff of 1789, that levied a duty of 6-50¢ per ton on all ships or vessels. The overwhelming purposes of early tariffs were to raise revenue for the national government and to protect an infant American manufacturing base against more established and robust industries overseas. Particularly, British mercantilist policies in the colonies were designed to prevent an independent American manufacturing base, and this uneven playing field did not automatically disappear after independence. Thus, later tariff laws were passed in 1816, 1824, 1828, 1832, and 1833. Not every tariff was supported domestically: the 1828 Tariff of Abominations was hotly debated and led to the nullification crisis between South Carolina and the national government in the early 1830s.
In general, the Federalists and later the Whigs presented four overarching reasons for passing tariffs. First, they argued that “free trade” was not fair. Governments around the world had their thumbs on the scales, either by passing protective tariffs of their own or subsidizing domestic industries in order to give them an edge. Second, America was highly dependent upon foreign manufacturers for basic goods such as cotton textiles (American was the largest exporter of raw cotton). Having just won a war for its independence, narrowly avoided getting dragged into the French Revolutionary War, and then having watched the Capitol be burned to the ground by British troops in 1814, America could not avoid outsourcing her wealth to hostile countries. The continental United States was not yet secured from foreign presence, and the threat of war for the newly minted and untested nation made an independent manufacturing base necessary for national security.
Third, tariffs helped local industries to flourish and encouraged domestic markets to grow. The founders had sought to establish a “free market” system domestically through measures such as the Commerce Clause (Art. I, Sec. 8) that gave the national government the power to regulate and facilitate commerce among the several states. The states were explicitly forbidden from coining their own money (specie), imposing any impost, duties, or tariffs on imports or exports without the consent of Congress, or entering into exclusive commercial contracts with other states (Art. I, Sec. 10).
The founders believed that free and fair exchange of goods and services could only exist in a previously unified political system under a single constitution. Markets could not survive on their own without a political foundation (rule of law, just contracts, fair weights and measures, common currency, adjudication of fraud and other conflicts, etc.), and the idea that commercial life could displace the political was laughable. The founders did espouse the idea of a “commercial republic,” but they still believed in the priority of politics as the organizing discipline of a common national life. Since the international sphere under the Law of Nations was believed to be a state of nature without a common political regime ruling over all nations, the idea of a global market guided by an enlightened invisible hand that would always work prosperity and progress was doubtful.
Fourth, Henry Clay argued that tariffs could protect the laboring classes without having to encourage slavery or slave-dependent industries. In other words, protective tariffs in the early republic protected working-class whites against slave competition from below, just as tariffs today protect poor and middle-class Americans against illegal immigrants who will accept wages below the domestic market price (or the government-mandated minimum wage). We get a glimpse of the Whig philosophy toward industry and protective tariffs in the 1845 edition of The American Review (a Whig journal of politics, literature, arts, and science). In an article entitled “The Infancy of American Manufacturing,” the journal reminded the American people of America’s long-standing and disadvantageous “colonial dependence upon Great Britain” and the continued need for economic independence. In particular, protective policies like tariffs could provide “protection against derangement and depression by unequal foreign competition”; they would “extend and diversify the sphere of home industry”; and this would have the effect to “increase generally the intellectual and industrial capacity of the laboring class.” Tariffs were popular for these and other reasons and so were a consistent part of American economic policy for well over a hundred years. Tariffs were, in the words of the indominable Pat Buchanan, “what made America great.”
The Emergence of “Free Trade,” American Economic Hegemony, and the Financialization of the American Economy
Therefore, it is undeniable that the founding generation believed in and practiced “economic nationalism,” both in the Constitution and in early statutory law. In fact, America’s economic policy from the 1790s until the 1930s was characterized by restrictionism and protectionism in one way or another. It wasn’t until America emerged victorious after World War II and voluntarily adopted an international free trade order under the Bretton Woods monetary system that pegged other currencies to the dollar (which was backed by gold until the 1970s)—and so made America the international commercial patron of the post-war era—that the older protectionist model of economic nationalism was displaced. Combined with the dominance of American industry and GDP (the Western and Asian economies were all decimated), as well as the growth of U.S. military hegemony throughout the Cold War conflict, the older economic system was ushered out as incompatible with an American-led Liberal International Order.
The American economy grew quickly and became prosperous in the post-war years, maintaining an industrial base despite shifting slowly and organically to a service-based economy. However, when America went off the gold standard in 1971, the door opened for massive growth in speculation and stock portfolios. The result was a thorough ‘financialization’ of the American economy: Wall Street stock market indexes and trading drove conceptualization of economy health and prosperity, economists became obsessed with ever-increasing GDP as a sign of higher standards of living, and a small number of Americans made hand-over-fist profits on financial assets (future interest, dividends, capital gains) even while millions saw their real wages decline, inflation rise, and the purchasing power of the dollar plummet. As Treasury Secretary Scott Bessent related in a recent interview with Tucker Carlson, today the top 10% of Americans own 88% of all assets, the next 40% own the remaining 12% of assets, and the bottom 50% of Americans simply have debt.
The American global order and the handsome profits that came with it required the destruction of the middle class and American manufacturing. In exchange for outsourcing production to China or India in a global economy, multinational corporations and international conglomerates were able to slash production costs, deliver cheap (and often brittle and toxic) goods to Walmart shelves, and increase profit margins. Foreign countries placed a slew of tariffs on American exports in order to protect industries that otherwise would have flourished here. This drove America’s trade deficits to increase year after year. In exchange, America exported not tangible goods and services but the dollar, and especially her debt in Treasury bonds, which were sold to Japan and China. This allowed America to keep the dollar as the world’s reserve currency, without the backing or restraint of gold, and so enabled massive debt spending into the tens of trillions of dollars. The results were ballooning welfare costs, money laundering and paybacks for politicos, and the fraud and corruption rampant in USAID.
Who benefited from this fake and distorted system? China, big business, foreign countries, and the American upper class. Who lost out? Lower and middle class Americans, small businesses and manufacturing in this country, and the millions of slave and immigrant laborers necessary to keep the system functioning. Trump and Bessent see this system as rotten and unsustainable, and they have launched a frontal assault.
Trump’s Tariff Gambit
The Trump Administration had been signally about the coming tariffs for weeks and months, and of course, it formed a core of Trump’s re-election campaign. During Trump’s first term, his administration imposed a variety of tariffs in the first half of 2018: a 25% tariff on steel imports, 10% on aluminum, and 30-50% on solar panels and washing machines. Many of these and additional tariffs were aimed specifically at China, sparking a mini trade war that led to retaliatory tariffs by the Chinese and a decline in trade between the two countries in certain sectors. While assessments of the effectiveness of these tariffs have been mixed, it is undeniable that Trump is right to highlight the China problem. Not only has China engaged in numerous “market distortions” like currency manipulation and the flouting of World Trade Organization trade rules, but China has pursued subversive, criminal, and clandestine military espionage against the United States: from stolen military technology to copying chip designs and nuclear reactor plans to pilfering software code to sending “college students”-turned-spies, to embedding personnel in the U.S. government, the Chinese have been waging a calculated and ruthless cold war against a comfortable, lazy, and compromised America.
Critics of Trump’s tariffs during his first term and again now have a single, siren song that they loudly play on repeat: tariffs are bad economic policy, they lead to retaliation, trade wars, and loss of productive trade and higher prices, and worst of all, they are a tax on consumers. There are two main problems with such criticisms: first, they are circumscribed to a narrow economic analysis that ignores all else, such as geopolitics and grand strategy; and second, they often simply get the facts wrong.
The first point bears emphasizing: tariffs are not only—and often not even primarily—about economics and trade. As the Whigs well understood, protectionist policies are a core part of national security and sovereign independence. Despite the United States’ attempt to create a global imperium and a ‘rules-based international order’ that would police global trade according to fair WTO trading rules, it turns out that the international sphere is still very much nature red in tooth and claw. All countries look out for their own, from tariffs being universally levied against the U.S. by our allies, to governments subsidizing favored industries, to other more nefarious and predatory practices. The U.S. middle and working classes have been naively taken advantage of, even while the upper class and financial sectors have become fabulously wealthy. The resulting foreign and domestic imbalances have created factions in America: those with the power and ability to change the system are profiting handsomely from a service-based economy, outsourcing to China, India, and Vietnam, and an international fiat-dollar system that allows for endless debt-financing; they have little incentive to care for American workers or national security. This partly explains the rise of Trump and MAGA as a populist movement to overthrow and replace a political elite that sold the American dream for a quick international buck and a trip to Davos—if not a second home on Martha’s Vineyard or a luxury vacation to Ibiza.
Second, economists worried about the long-term economic impact of tariffs are not entirely wrong about the risks tariffs can bring: retaliatory tariffs can decrease trade and access to goods, supplies, and markets; they raise supply prices for many businesses, some of which may not have the capital to alter their business model away from Chinese sourcing, production, and distribution; and tariff penalties can be passed from producer to consumer, leading to higher prices at the point of purchase. In addition, critics say that the current situation is dissimilar to past eras when tariffs might have made more sense: there was no income tax in the Early Republic (necessitating tariffs as an important revenue measure), and government spending-to-GDP ratios were so low as to offset market and national economic volatility that tariffs inevitably create.
The issue is that free trade also carries high risk, as economists who have studied the “China Shock” of the early 2000s have documented. China’s admission to the WTO in 2001 and the resulting outsourcing of manufacturing jobs decimated the American interior: in 1979 there were 19.9 million manufacturing jobs in America and in 1999 there were 17.9 million jobs (about 100,000 jobs lost a year over 20 years), but by 2007 there were only 14.2 million jobs—a drop of 3.7 million jobs, or 22% fall in manufacturing jobs, in less than a decade. In addition, this “creative destruction” was more destructive than creative: those who lost their jobs (mostly white males with families in traditional communities) did not rebound, they did not move to other manufacturing jobs or retail or service industries; they either dropped out of the labor force all together, or took disability or early retirement.
This was accompanied by an uptick in social despair—from mental health problems or drug addiction to welfare dependence, these men and their families and communities simply did not recover. Even worse, those areas of the United States that did experience industry growth and higher employment did not see manufacturing jobs replaced: instead, low-wage and low-skilled jobs in retail, fast-food, and hotel services (and related) increased, and the workers who filled these jobs tended to be younger, non-college educated youth, foreign-born immigrants, and college-educated women. In other words, white native-born American men who had formed the core of America’s industrial workforce were permanently unemployed and replaced by high schoolers, immigrants, women working completely different jobs.
No one who supports Trump’s tariff plan denies that tariffs and protectionist policies bring considerable risk in today’s global market. Yet, as Scott Bessent explained in his interview with Carlson, the current system is not working, and something had to be done. America must refinance nine trillion dollars in 2025, debt spending is out of control, and unfunded future liabilities are staggering (anywhere from $75-200 trillion). America is headed toward bankruptcy and insolvency under the current free trade global order. That China has gotten rich and become a peer competitor with America on America’s dime and at the expense of America’s middle class is well-known to the Trump administration. Tariffs are meant to induce a hard break from China: to cripple her economy, reorient international trade relations around the American economy by bringing other countries to the negotiating table, and spur foreign investment and new manufacturing in America (for those who doubt the re-industrialization is possible, just watch and wait). This is a high-risk, high-reward game that Trump is playing, a move that only a great political man would make, since market fundamentalists are ill-trained and private wealth managers conduct their entire business around a risk-adverse model.
Bessent also put a bee in the bonnet of the ‘tariffs are taxes on consumers’ argument. The Treasury Secretary argued that under a 10% across-the-board tariff increase, 40% of the tariff is absorbed by the exporting country or business, 40% is reallocated through financial or market mechanisms, and 20% is passed directly to the consumer as a price increase. This works out to only a 2% increase in the price of any given consumer item—not something that will break the bank and a cost many Americans are willing to bear for the sake of a resurgent middle class and stronger national economy.
Finally, for small and medium sized businesses that have been forced into the China-dependence model over the last twenty-five years, and who are now facing stiff import duties due to Trump’s tariffs (which could cause some of them to fold), Trump should offer immediate relief: from giving small-business loans at below market interest rates, to subsidizing certain industries, to granting special tax deductions, Trump should simultaneously hold steady on his tariff policies while meeting American businesses halfway to help them survive through a tumultuous period of economic reordering. Market advocates will hold up these companies and their struggles as proof that Trump’s policies are hurting the middle class and heartland businesses. Indeed, these small businesses should not be demonized, nor merely dismissed as collateral damage in the rebalancing of the global economy; Trump should do everything in his power to help them survive. No economist or private wealth manager heard or tweeted the silent screams of millions of industrial workers and their families who were decimated twenty years ago; Trump should not now ignore the plight of honest American businessmen and women scrambling to decouple from China.
Yet decoupling from China is an imperative, and protective tariffs make this possible. There is nothing more American that Trump could have done.
Image Credit: Unsplash
