https://www.project-syndicate.org/commentary/trump-tariff-war-makes-no-economic-sense-by-anne-o-krueger-2025-07
Trump’s Self-Defeating Trade Agenda
Jul 24, 2025ANNE
O. KRUEGER
US President
Donald Trump claims that his chaotic trade policies will bring back
manufacturing jobs, boost government revenue, and strengthen national security.
In reality, they are far more likely to stifle investment and trade, hurt
exports, and breed cronyism and corruption.
WASHINGTON, DC – While US President Donald
Trump pursued a range of protectionist policies during his first term, the
economic chaos and uncertainty he has unleashed since returning to the White
House and launching his global trade war make those earlier efforts look mild
by comparison.
Railing against countries that run trade
surpluses with the United States, Trump has vowed to impose “reciprocal
tariffs” until all of America’s trade deficits are eliminated. Yet he has
imposed sweeping tariffs even on countries with which the US runs a trade
surplus, such as Australia.
The Trump administration has cited a wide
range of reasons for its tariff hikes beyond reducing bilateral trade deficits,
including national security, job creation, and raising government revenue.
Trump and his advisers claim that other countries will be forced to negotiate
and ultimately lower their own tariffs on US goods. But the recent deal between
the US and the United Kingdom, which imposes a 10% levy on most
British exports, shows that even Trump’s “reduced” tariffs remain historically
high.
The unpredictability of Trump’s trade
policies poses a grave threat to the global economy. Trump’s tariff
announcements have been followed by numerous delays and revisions, and his
deadlines for finalizing new trade deals have come and gone, only to be
extended again. This erratic trade policy, combined with his apparent
reluctance to follow through on his threats, has given rise to the nickname “TACO,” or “Trump
Always Chickens Out.”
So far, the Trump administration has secured
new trade agreements with only a handful of countries, and even those have come
with unexpected conditions. Earlier this month, for example, Trump announced a
trade deal with Vietnam that imposes a 20%
tariff on Vietnamese imports, but only if Vietnam
eliminates its own tariffs on US goods and its exports contain no Chinese
components; otherwise, the rate jumps to 40%. While that’s
lower than Trump’s original rate of 46%, it’s still far higher than the 11%
that Vietnamese policymakers – caught
off guard by his announcement – reportedly believed
they had negotiated. Indonesia, for its part, accepted a 19%
tariff in exchange for granting most US goods
duty-free access to its domestic market. So much for fairness and reciprocity.
Similarly, tariffs on Chinese goods jumped from
10% to 145%, then were returned
to 10% – at least temporarily. But the average US
tariff on Chinese imports still stands
at 51.1%, and Trump could raise it again if the two
countries fail to reach a trade deal by
August 12.
Trump has also threatened to
impose 30% tariffs on the European Union and Mexico. While EU policymakers are
hoping to avoid the tariffs through negotiations, they are reportedly
considering retaliatory
“anti-coercion” measures of their own.
Adding to the uncertainty are Trump’s tariff
hikes and new restrictions on commodity imports. Since January, the US
has raised steel,
aluminum, and copper tariffs
to 50% and imposed a 25% tariff on auto parts. Although he claims that
his deal with China will ensure US access to rare-earth minerals, their status
remains in limbo amid ongoing trade tensions.
The entire process has been marked by
confusion and inconsistency. For example, the administration imposed tariffs on
imported urea – a key fertilizer input – from Qatar and Algeria, but not from
Russia. As a result, by May, Russia was supplying
64% of urea
imports to the US, double its previous share.
As if that weren’t enough, some of Trump’s
actions serve no discernible economic purpose. Most notably, he has threatened to hit
Brazil with 50% tariffs to pressure its government not to prosecute former
president – and Trump ally – Jair Bolsonaro. Likewise, he reimposed tariffs on
aluminum and steel imports, despite clear
evidence that job losses due to increases in input
costs were far
greater than the employment gains in protected
industries during his first term.
When tariffs vary by country and can change
at a moment’s notice, chaos is inevitable. There are currently more
than 10,000 tariff classifications covering imports from
over 160 countries. This means there could be more than one million different
tariff rates, leaving customs officials and shippers to navigate an
increasingly unmanageable system.
Many of Trump’s tariffs are ostensibly
intended to strengthen national security, but it’s difficult to see how
targeting allies like Canada helps achieve that goal, especially since cutting
off foreign suppliers would only drive up the cost of defense procurement.
Moreover, allied countries could help the US increase production of certain
goods when necessary, thereby supporting domestic capacity.
Trump’s tariffs will harm the US economy in
several significant ways. For starters, contrary to Trump’s claims, raising
tariffs does not reduce trade deficits. On the contrary, it undermines
investment and trade, increases the real cost of imported goods, and provokes
retaliation, hurting exports.
The irony is that increased domestic
production, spurred by protectionist policies, reduces the volume of imports –
and with it, tariff revenues. In some cases, tariffs work at cross purposes:
steel tariffs, for example, raise input costs for automakers. Consequently,
tariff revenues will likely fall far short of the administration’s
expectations.
As for job creation, some firms benefiting
from tariff protection may invest in automation to replace human workers,
especially in industries that rely on low-skilled labor. By contrast, firms in
import-competing or export-oriented sectors are likely to respond to ongoing
uncertainty over future tariffs by delaying capacity expansion.
Another troubling consequence of the current
tariff regime is the increasingly visible rise of crony capitalism, as a steady
stream of foreign officials and American business executives descends on
Washington to lobby for tariff exemptions and protections.
Six months into his second presidency, it is
abundantly clear that there is no coherent rationale behind Trump’s tariffs.
They are costly and haphazard, undermining economic growth and turning the free
market that once drove US productivity into a breeding ground for rent-seeking
and corruption.
Writing for PS since 2014
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Anne O. Krueger, a former World Bank chief
economist and former first deputy managing director of the International
Monetary Fund, is Senior Research Professor of International Economics at the
Johns Hopkins University School of Advanced International Studies and Senior
Fellow at the Center for International Development at Stanford
University. She is the author of International
Trade: What Everyone Needs to Know (Oxford University Press, 2020).
