Liberation Day
The end of something and the beginning of what?
Over the next few days, you’re likely to read a number of takes about President Trump’s new tariff schedule. Confidence in prediction will often far exceed the evidence. These tariffs will inaugurate a new golden age. No, they’ll ignite a global depression. We'll be building flying cars to the moon with union labor in Georgia—or we’ll be crawling through the economic wreckage.
Instead, I’d like to play out some of the variables here, while acknowledging how hard it can be to anticipate the effects of something so unprecedented. The aims of the principal actors are unknown, and the forest of decision trees remains lost in the fog of uncertainty.
I do feel fairly confident in saying that these tariffs could be the biggest shock to the global trade system in decades—if not since the Second World War. Other potential rivals could be something like the People’s Republic of China joining the WTO, the oil shocks of the Seventies, or maybe the coronavirus pandemic. In any case, it’s big. Trump’s announcement of global tariffs essentially yanks a block out of the teetering Jenga tower of the multilateral trading order that has been built up over decades. For arch-disruptors like Steve Bannon, that’s a feature, not a bug. For many on Wall Street, that’s a source of terror (probably another feature-not-bug for Mr. Bannon).
It’s a challenge to overstate the scope of disruption entailed in this measure.
Some have analogized these tariffs to the high-tariff policy that guided Republicans between the Civil War and the Great Depression. But I think that’s a faulty parallel. Prior to the 1930s, Congress was the prime driver of tariff policy. In a structural inversion of the way that the “reciprocal trade” paradigm birthed by Franklin Roosevelt transferred more authority to the president to help him lower tariff barriers, President Trump is claiming unilateral and indefinite executive authority to set global tariff rates. This would give the president unprecedented and granular control over trade policy, very much unlike the days of McKinley or Coolidge.
Moreover, the tariff rates of the early 20th century were often set by product. Specific tariffs for specific goods were a major subject of congressional horse-trading. As an example of how calibrated those tariffs could be, here’s a couple paragraphs from the Tariff of 1922.
The tariffs announced by the president today instead have a flat rate for different countries. Some “New Right” outlets have long pushed for a global 10% tariff, and the White House policy seems to include that, in addition to floating reciprocal tariff above that. Vietnam faces a 46% tariff for all exports to the United States, for instance, while Singapore skates by at 10%. Without getting into the policy merits of these two approaches to tariffs, I’ll simply observe that they are very different.
Two massive, interconnected, and unknown variables are how foreign nations will react to these tariffs as well as what the Trump administration is actually looking for through levying them.
You don’t need to be an expert in reading tea leaves to see that the Trump administration is itself extremely divided about tariffs. Different factions within the administration have very different aims about what the tariffs are supposed to accomplish. For months, many top Trump advisors claimed in the press that the goal of tariffs were to get countries to “make a deal.” Tariff threats were thus a vehicle for a renegotiation of trade agreements rather than a policy end in and of themselves.
If that’s the case, then the administration could be quite flexible with these tariff rates, and many trade partners could soon see their tariffs slashed by making relatively targeted trade concessions to the United States.
However, other members of the administration see tariffs as positive good—for revenue, protection, or both. For proponents of tariffs as leverage, the goal of tariffs is not to use them; for allies of revenue or protective tariffs, the point of tariffs is, well, tariffs. If this side has its way, then tariff rates could be much stickier.
Here’s what a “senior White House official” told National Review’s Audrey Fahlberg:
“This is not a negotiation,” said a senior official on the call. “It’s a national emergency.” In the White House’s view, “any country that thinks that they can simply make an announcement promising to lower tariffs” is ignoring the underlying problem that “massive non-tariff barriers” institutionalize trade models to “cheat America.”
This person said it will take “a long time” for countries to remove “non-tariff barriers” to trade, citing sweatshops labor, pollution havens, export subsidies, intellectual property theft, and agricultural constraints among the many factors that negatively influence trade with the U.S. The “massive non-tariff barriers” are what “need to go in order to resolve this national emergency,” a senior official said.
Does that person sound eager to make a deal to cut tariffs?
Moreover, it looks as though the White House used a relatively simple mathematical formula to calculate the “non-tariff” barriers other countries put up against the United States: it simply divides the bilateral trade deficit in goods by a nation’s exports to the United States. Thus, because Israel had a $7.4 billion trade deficit with the United States and$22.2 billion in exports to the United States, the White House says that its “tariffs charged to the U.S.” are 33% (7.4 divided by 22.2) and slaps a 17% tariff on Israel. While the White House hasn’t yet said it uses this formula, that calculation seems to work for almost every country on the tariff list. If that is the formula for determining a country’s tariff burden, it’s not always clear what the policy ask for each country would even be for a reduction in tariff rates.
President Trump likes to play his advisors off each other, so seeing a divergence of opinion among his aides isn’t surprising. But it also makes it much harder to anticipate the White House’s endgame. It is already announcing exceptions to these tariffs, and more might potentially wait in the days ahead.
The bigger geopolitical signals of this announcement are also mixed. If implemented, these tariffs could send shockwaves through the People’s Republic of China. Eamon Javers reports that White House Press Secretary Karoline Leavitt told him that the 34% tariffs on the PRC would stack on top of the preexisting 20% tariff—leading to a 54% tariff. That would be a crushing burden on exports from the PRC to the United States, which could further accelerate decoupling and put intense pressure on the Chinese economy. The president’s ending of the de minimis exemption for packages from the PRC, which allows them to skirt customs duties, will only compound those pressures.
However, the currently announced tariff schedule also levies major tariffs on countries (such as Vietnam) that have been major beneficiaries for supply chains relocating out of the PRC. If those tariffs stay high, they would lessen the incentive for factories to “friend-shore” away from the PRC and thus could slow down decoupling.
I have my own thoughts about what an effective reformed trade policy would look like, but—rather than projecting that onto this policy—I think it’s important right now to recognize the zone of uncertainty. We’re at the end of the old global-trade paradigm (which, honestly, died years ago), but it remains unclear what exactly waits ahead.
Some samples on trade (from a variety of perspectives):
Michael Lind in defense of tariffs—mostly focusing on China.
on America’s three demands on trade.The Wall Street Journal is, ah, not a fan of the president’s new trade policy.
Stephen Miran’s November 2024 letter on grand strategy for trade. Miran is now chair of the Council of Economic Advisers, so this is an important window into how some in the administration view trade policy.
Allison Schrager raises doubts about a “wholesale reshoring agenda.”
Peter Ryan on how industrial policy needs to go beyond tariffs.
A nice pairing in the new National Review: Dominic Pino defending “free trade,” while Michael Brendan Dougherty thinks there are limits to that agenda.
ICYMI: My longform analysis in COMPACT of the political pressures of different trade paradigms—and the case for resilience.
UPDATE via a commenter: Yanis Varoufakis on “liberation day.”
I would add the recent articles by Yanis Varoufakis in UnHerd. He has a rather unique and interesting perspective on the tariffs.