The Trump Tariffs: Part 4
The punishment that keeps on punishing
This is Part 4 in a series on the policy risks of the Trump Administration, on the eve of upcoming tariff announcements, by econVue contributor Marsha Vande Berg. ( See links to Parts 1-3 below)
Introduction: April 2nd
Like many of us, I am trying to make sense of a core pillar of President Donald Trump’s economic policy – his stand on tariffs and trade policy. The indelible mark on his first 60 days of his second term is the utterly single-minded intention to levy crippling tariffs on America’s trading partners, punishing them, he says, for cheating and taking advantage of the world’s largest economy.
Trump wrote on his social media platform this month:
❝ For DECADES we have been ripped off and abused by every nation in the World both friend and foe. Now it is finally time for the Good Ol’ USA to get some of that MONEY, and RESPECT, BACK. GOD BLESS AMERICA!!!
My interest is understanding why such an extensive tariff policy is the play of the day, when it’s a blunt instrument that by definition can’t discriminate between cause and effect and whose unintended consequences can cause severe economic pain. With the arrival of April 2nd – the day Trump has taken to calling “Liberation Day”, the world is anticipating the White House’s escalation of tariffs and further upending global trading norms. Secondly, how are Americans reacting, particularly to the unintended consequences? And then what might the endgame be.
I’ll try to offer answers in this fourth contribution in a series that is intended to analyze emerging macro risks to the economy and for geopolitics. Each of these Vuepoints draws on the outline of risks that the Eurasia Group addresses in its January publication, Top Risks 2025.
The US Economy – January 20th
On his January 20th inauguration day, Donald Trump was handed an economy that a special report in the Economist described as the “envy of the world”. Robust growth in the US was outpacing other developed countries and fueling a faster GDP growth rate in the world’s largest economy than other parts of the developed world. Unemployment was only 4 percent.
Productivity was up, a credit to a vibrant, innovative and competitively nimble tech sector. The stock market was booming. The worry was overly high valuations. Consumer sentiment was strong, indicating that stubborn inflation was finally giving way to the Fed’s patient coaxing.
The economy was growing; more money was being spent; more stuff was being produced; more businesses were being started; and more workers were being hired. It was a bright outlook but with an ominous underbelly. Was the growing inequality in America the price we were willing to pay for topline growth, never mind the implications for increasing disparities in living standards across the American demographic? More immediately, was the US consumer’s growing dependency on foreign imports the canary in the coalmine that something was horribly amiss with how the US traded with the rest of the world?
Enter Donald Trump
Both in his inaugural remarks and his more recent address to Congress, the president made clear his intentions to ignore norms of the global trading system as they existed today and which the US had been largely responsible for setting over the years. He would tariff and tax countries to punish perceived freeloaders, force tighter border security with Canada and Mexico, checkmate China’s manufacturing prowess and in the process turn around the trade deficit and enrich Americans too.
❝ We have been ripped off for decades by nearly every country on Earth, and we will not let that happen any longer,” Trump vowed in his March 4th joint address to Congress.
His remarks all but deep-sixed economists’ warnings that tariffs are actually a tax on US consumers with serious potential to stoke serious inflation. What’s more, tariffs alone would not reduce the trade deficit or restore jobs to America’s hollowed out manufacturing sector. Nor would they solve the social polarization in America’s body politic. Instead, they were a distraction from what some consider to be America’s most troubling dilemma.
Instead, the White House showed it values tariffs as a powerful “hammer” and the trade deficit as “their biggest nail.” The President’s message and that of his advisors was that there may well be short-term pain, including the possibility of a recession. But bear with them. The pain will translate into long-term gain – eventually.
Largely by claiming the interests of national security, Trump to date has added 20-percent tariffs on all China’s imports on top of those tariffs already in place. He has placed a 25-percent levy on US imports of steel and aluminum and on a long list of products made with those metals.
In early March, he initially ordered 25-percent levies on all Mexican and Canadian imports. He said he wanted to force tighter borders against illegal and drug trafficking. He softened the decree hours after its imposition to exempt goods that complied with the terms of the 2020 trilateral North American trade agreement.
He has ordered so-called “secondary tariffs” on countries that buy oil and gas from Venezuela - to take effect on Wednesday, April 2. He also intends on April 2, which he calls “Liberation Day”, to apply so-called “reciprocal” tariffs on any trading partner with higher levies on US imports than the US imposes back. The authorization he claims is under the US International Emergency Economic Powers Act (IEEPA) and a little known trade law, Section 338 of the Tariff Act of 1930.
The US Economy Sixty Days after Inauguration
While there are many sources for credible analysis of the US economy, the following is the March 30 analysis by Goldman Sachs, Economics Research, “US Economics Analyst: A Further increase in Our Tariff Assumptions” (Walker/Phillips/Mericle:
The US economy now faces a 35-percent probability of recession, which is up from the previous 20-percent estimate. This outlook anticipates a sharp deterioration in household and business confidence together with official statements from the White House that indicate a greater willingness to tolerate economic weakness if it means achieving their policies.
Without specifically naming Trump’s tariff policy, the forecast takes note that tariffs have increased the economy’s downside risks.
Also anticipated is that the Federal Reserve may later in the year shift gears in favor of implementing 2019-style “insurance” cuts in interest rates. “While the Fed leadership has downplayed the rise in inflation expectations so far, we think it does raise the bar for rate cuts and in particular, puts greater emphasis on a potential increase in the unemployment rate as a justification for cuts.”
Instead of boasting one of the lowest tariff rates in the world, the intended reciprocal tariffs as of April 2 will average 15-percent tariffs, possibly dropping to 9 percent due to possible product and country exclusions.
Here, the 15- and 9-percent tariffs are in sharp contrast to US tariffs averaging 1.7 percent in 2016 and then the most recent 2.5 percent in 2024.
The economy that was once the “envy of the world” is today flashing red. The drivers by all counts are trade tensions, policy uncertainties and fears that trust in US governance is being undermined.
❝ Where we stand now is with a heightened concern about the US economy,” says J.P. Morgan’s chief global economist Bruce Kasman.
Reaction from Across the Nation
The following is a flavor of recent reactions to tariff-related announcements nevertheless offering insights into the growing uncertainties and even fear for what is ahead:
The University of Michigan Consumer Index – an assessment reflecting how consumers view their financial prospects and the prospects for the economy, short and long term:
Consumer sentiment fell in March for third straight month to hit the lowest since November 2022. Consumer sentiment worsened for personal finances, business conditions, unemployment and inflation. The ongoing worry is about the pain economic policy developments in Washington might deliver.
The Conference Board – a nonprofit think tank and business membership organization:
Its consumer confidence index fell 7.2 points in March to 92.9, the fourth straight monthly decline and its lowest level since January 2021. The proportion of US consumers anticipating a recession remained at a nine-month high.
Cato Institute – a think tank of libertarian persuasion:
President Trump’s levy of a “permanent” 25-percent tariff on imported autos and auto parts “represents one of his most brazen – and foolish – moves yet.” The action “blows up” the trade agreement with Mexico and Canada which the Trump administration negotiated during the president’s first term.
UAW – a large and diverse union with members in auto manufacturing among other sectors:
“We applaud the Trump administration for stepping up to end the free trade disaster that has devastated working class communities for decades. Ending the race to the bottom in the auto industry starts with fixing our broken trade deals,” union leaders said in a statement following the Trump White House’s announcement of tariffs on imported autos and auto parts.
The CEO membership of the Chief Executive Leadership Institute run by Yale University Professor Jeffrey Sonnefeld. A recent survey of 100-plus CEOS – 60 percent of whom identify as Republican - found:
Some 67 percent believe the Trump administration will be bad for the economy; 85 percent oppose the president’s tariff policy; 94 percent worry tariffs will be inflationary; and 85 percent think the current uncertainty in the US government and felt across the economy will be a gift to China.
“This was not how CEOs felt two months ago,” Sonnenfeld told Foreign Policy editor Ravi Agrawal in a virtual March 24 interview for Foreign Policy Live. Trump’s 2024 election had signaled optimism about the prospect of corporate tax law changes and deregulation. At the time few took seriously the prospect of the president casting such a wide and yet comprehensive tariff net.
“No one thought tariffs would be driven by tantrums. They thought they would be strategic,” Sonnenfeld told Foreign Policy. In fact, many CEOs in the US believe Washington has legitimate issues with trading partners over unfair trading practices, for example, with countries that dump surplus product into complex and integrated global supply chains. But the solution is not the blunt instrument of blanket tariffs. Rather it’s to strategically ferret out the culprit.
Sonnenfeld offered an example. A 1000-percent increase in aluminum and steel imports into the US from Canada is not all Canadian product being sold to price-conscious buyers in the US. Its aluminum and steel product from Russia, China and even Ukraine that’s getting dumped and then washed through the system.
Is There an Endgame?
The questions raised are more than the available answers can provide. What’s clear is that a core pillar of Trump’s economic policy is sowing uncertainty, worry and even fear domestically as well abroad. There is at this point little clarity as to where it takes us as consumers, investors, business executives and rank and file workers not to mention foreign trading partners.
What is emerging is clarity around the politics that are in play. They are the politics and the policies of an individual president with deeply-held grievances about systems of governance that he does not like or agree with. To knock down and out these systems of governance over trading relationships even if it unwittingly risks a recession- or less generously carelessly does so, is a remarkable turn of events in American leadership.
But if the slowdown does in fact lead to a recession, it seems then a fair analysis may well be:
President Trump’s tariffs are in keeping with his campaign promises. He said he would double down on tariffs, and he is doing so - but without the necessary and obligatory calculation as to the potential ramifications along the way. He is willing to inflict pain on the nation’s economy and all its components and particularly its citizens to prove his point that others are to blame.
Writing on Feb. 2nd on his social media outlet Truth Social in response to February’s correction in the markets, Trump asked:
❝ WILL THERE BE SOME PAIN?” And then he answered himself: “YES, MAYBE (AND MAYBE NOT.
In the meantime, his punishing tariffs are certain to continue to sow uncertainty about the US economy as well as our own reliability as a system of governance.
Marsha Vande Berg
Marsha Vande Berg is a thought leader with expertise in international business, public administration and global affairs. Her emphasis is Asia Pacific markets, governance, sustainability and technology.
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