President Trump unveiled his new "liberation day" tariffs on Wednesday, and they are another large step toward a new old era of trade protectionism. Assuming the policy sticks -- and we hope it doesn't -- the effort amounts to an attempt to remake the U.S. economy and the world trading system.
All details aren't clear as we write this, but Mr. Trump's tariffs look "reciprocal" in name only. First he's hitting every nation in the world with a 10% "baseline" tariff to sell in the U.S. market. For those he calls "bad actors," he's adding up the country's tariff rate on U.S. goods, plus an arbitrary estimate of the cost of its "currency manipulation" and non-tariff barriers. He then takes that total number and applies half of that in tariffs on the country's exports to the U.S.
He's hitting China with a 34% tariff, but our Japanese friends will pay nearly as much at 24%. The European Union gets whacked with 20%, India with 24%. We'll assess the details further in coming days, but for today let's consider some of the consequences already emerging in this new protectionist age:
-- New economic risks and uncertainty. The overall economic impact of Mr. Trump's tariff barrage is unknowable -- not least because we don't know how countries will react. If countries try to negotiate with the U.S. to reduce tariffs, the damage could be milder. But if the response is widespread retaliation, the result could be shrinking world trade and slower growth, recession, or worse.
There will certainly be higher costs for American consumers and businesses. Tariffs are taxes, and when you tax something you get less of it. Car prices will rise by thousands of dollars, including those made in America. Mr. Trump is making a deliberate decision to transfer wealth from consumers to businesses and workers protected from competition behind high tariff walls.
Over time this will mean the gradual erosion of U.S. competitiveness. Tariffs that blunt competition invite monopoly profits while reducing the need to innovate. This is the story of the American steel and car industries in the 1950s and 1960s before global competition exposed their deficiencies.
-- Harm to American exports. One longtime U.S. trade goal has been to expand markets for American goods and services. Administrations of both parties pursued trade deals, bilateral and multilateral, to do so. Apollo Global Management says 41% of S&P 500 firms' revenues come from abroad.
Mr. Trump's unilateral tariffs blow up those arrangements and invite retaliation. U.S. exports will suffer directly from retaliatory tariffs. And they will suffer indirectly as other countries strike trade deals that give preferential treatment to non-U.S. firms. Think of Brazil's soybean bonanza after Mr. Trump's China tariffs in his first term.
-- A bigger Washington swamp. Tariffs impose costs that businesses will want to avoid. They will thus be a windfall for Beltway lobbyists as companies and countries seek exemptions from this or that border tax.
Mr. Trump is saying there will be no tariff exemptions. But watch that promise vanish as politicians, including Mr. Trump, see exemptions as a way to leverage campaign contributions from business. Liberation Day is Buy Another Yacht Day for the swamp.
-- The end of U.S. economic leadership. Britain played this role through World War I, but it was too weakened by war to continue. The U.S. didn't take up the leadership mantle until after depression and World War II. U.S. leadership and the decision to spread free trade produced seven decades of mostly rising prosperity at home and abroad. The U.S. share of global GDP has been stable at about 25% for decades, even as industries rise and fall.
That era is now ending, as Mr. Trump adopts a more mercantile vision of trade and U.S. self-interest. The result is likely to be every nation for itself, as countries seek to carve up global markets based not on market efficiency but for political advantage. In the worst case, the world trading system could devolve into beggar-thy-neighbor policies as in the 1930s.
The cost in lost American influence will be considerable. Mr. Trump thinks the lure of the U.S. market and American military power are enough to bend countries to his will. But soft power also matters, and that includes being able to trust America's word as a reliable ally and trading partner. Mr. Trump is shattering that trust as he punishes allies and blows up the USMCA that he negotiated in his first term.
-- A major opportunity for China. The great irony of Mr. Trump's tariffs is that he justifies them in part as a diplomatic tool against China. Yet in his first term Mr. Trump abandoned the Asia-Pacific trade deal that excluded China. Beijing has since struck its own deal with many of those countries.
Mr. Trump's new tariff onslaught is giving China another opening to use its large market to court American allies. South Korea and Japan are the first targets, but Europe is on China's list. Closer trade ties with China, amid doubts about access to the U.S. market, will make these countries less likely to join the U.S. to impose export controls on technology to China or to ban the next Huawei.
This is far from a comprehensive list, but we offer them as food for thought as Mr. Trump builds his new protectionist world. Remaking the world economy has large consequences, and they may not all add up to what Mr. Trump advertises as a new "golden age."
Your editorial "Trump's New Protectionist Age" (April 3) commendably lays out the stakes of the president's new tariff taxes on Americans and our closest partners around the world. But there are growing fissures on the political right. The scope of the setbacks and qualified successes of Mr. Trump's tariff policy comes down to which faction can turn the executive branch's tariff-policy steering wheel.
Classical conservatives, such as my think tank and the vast majority of pro-free trade Republicans in Congress, see these tariffs as, at best, a negotiating tactic to reduce global tariffs. Old-school progressives and so-called new-right figureheads want permanent protectionism to eliminate the trade deficit.
The latter faction has adopted wholesale Bernie Sanders-style economic populism that will cripple the economy. Such people ignore that, since the North American Free Trade Agreement in 1994, our manufacturing output has significantly increased and typical annual family income surged by more than $25,000. The best way through this widening trade war is to prove that the traditional conservative formula still works -- and quickly. While Mr. Trump pushes protectionism, economic freedom's friends in Congress should push for tax-cut permanence, deregulation and, as Sens. Chuck Grassley and Rand Paul are already doing, attempting to return the president's ill-gained trade powers to the Legislature.
Protectionists inside and outside the White House may be quack doctors who think a little bloodletting will strengthen the economy, but competent conservatives across the movement are working to make inroads with Congress to stop the bleeding and save the patient.
Tim Chapman
Advancing American Freedom
Washington
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You write that one of the consequences of Mr. Trump's tariffs will be a "bigger Washington swamp," as lobbyists seek exemptions "from this or that border tax" for companies. "Liberation Day," you add, "is Buy Another Yacht Day for the swamp." I wouldn't be so sure, considering the cost of yachts has just skyrocketed. The yachts I sell are built in Taiwan, on which Mr. Trump has slapped a 32% tariff. Other yacht-producing countries face even higher levies.
The history of the U.S. yacht business provides some good lessons on bad government policy. The 10% luxury tax in 1990 almost wiped out our large yacht builders. The European Union's retaliatory tariffs during the first Trump administration were the nails in our coffin. Today, most of us survivors sell and service imported yachts. The feds are coming for us again.
Peter Truslow
Portsmouth, R.I.
Global View; Why Trump Wants Tariffs
President Donald Trump's hastily kludged together tariff plan has global financial markets swooning. His plan has accomplished two things that befuddled Democrats couldn't: Tariffs have plunged Mr. Trump into the first true crisis of his second term, and they have American voters wondering if the president is fit for office.
It is much too early, however, to draft obituaries either for the Trump presidency or the MAGA movement. If there is one lesson since the president descended the escalator at Trump Tower in 2015, it is not to write this man off. A guy who can turn a mug shot into a presidential portrait should never be discounted, and disasters that would ruin lesser talents leave him unfazed.
What we are seeing is classic Trump. The president believes in himself and his core intuitions and convictions. He believes the analysts and policymakers who disagree with him are foolish and weak. When he encounters resistance, his instinct isn't to compromise and reconsider. It's to double down on his bets, hype up the drama and intimidate his opponents through bold strokes and tough threats. Show him a Gordian knot and he whips out his sword.
As his policies at home and abroad encounter resistance -- a resistance sometimes grounded less in the obstinacy of his enemies than in the unyielding nature of facts -- Mr. Trump becomes more determined. This method has worked for him in the past, and he believes it will work for him now.
Mr. Trump's abiding goal appears to be to maximize his personal power, not to win arguments with trade economists or to boost stock prices. Domestically, he believes that the political strength he gains from asserting total control over American tariff policy will intimidate businesses into supporting him. He believes that the bonds with his supporters will survive an economic rough patch.
Internationally, the president hopes that his shock and awe tariff tactics will boost his -- and America's -- power and prestige. Access to the American market, he believes, is the most powerful weapon this side of a nuclear bomb. In perhaps the most naked display of American economic power since President Dwight Eisenhower forced Britain to abandon its Suez adventure in 1956 by threatening to attack the British pound, Mr. Trump wants to force American allies and adversaries alike to recognize his power and conform to his priorities.
It is an understatement to call this a flex. Mr. Trump knows that trade with the U.S. is vital to the prosperity and even the stability of dozens of countries. He is aware that American guarantees underwrite the security of much of the world. By telling the world that both trade rules and security guarantees depend solely on his will, he is concentrating the greatest possible amount of power in his hands. The reckless and arbitrary nature of his tariff schedule emphasizes how vulnerable others are to his decisions while advertising the absence of domestic constraints on his power.
Mr. Trump will need all the power he can get. The international crises confronting this administration grow larger and more dangerous by the day. Vladimir Putin has taken no steps toward genuine compromise in Ukraine and if anything has cozied up to China.
Xi Jinping is also standing firm, responding to the latest round of U.S. tariffs with retaliatory tariffs of his own -- even as he steps up military preparations against Taiwan. In the Middle East, bombing the Houthis has to date produced no strategic breakthroughs. And as U.S. pressure on Iran and its Houthi allies grows, and the potential for more fighting in the Middle East rises, Russia and China aren't walking away from their wounded and weakened Iranian friends.
The question as always with Mr. Trump is how he intends to use the power he has accumulated. Does he want a fairer global-trading system, or are his instincts purely mercantilist? Does he seek to make the North Atlantic Treaty Organization more effective by shocking the Europeans into behaving less foolishly, or is his real goal to break it? Does the president want to reform government, or is the Department of Government Efficiency an attempt to weaken Washington's capacity to restrain business interests? Does he care about policy, or is his entire political career an expression of egotism and concern for his family's financial future? Is he really out to conquer Canada?
Mr. Trump himself may not know the answers to these questions. But one way or another, the steps he takes in the coming months will establish his place in history. For good or for ill, it will be huge.
By Walter Russell Mead
