The scorners and the doomsayers, however, miss the soul of the matter — and also an opportunity.

Intentionally or not, tariffs appear to be making cheap imported stuff more expensive. At least, this is the consensus among the critics. The reciprocal tariff chart may have broken the commentariat with its crudeness as an expression of economic policy, but it had a certain rough elegance in terms of identifying stuff that’s too cheap and making it cost more. It has been weird to watch the resistance to this idea, since stemming the flood of made-for-landfill consumer goods has long been a popular talking point for the Leftists and environmentalists who oppose Trump.

It’s an article of faith for these people — and I’m one of them — that our limitless appetite for disposable consumer goods from China and the developing world shortchanges domestic workers, underwrites brutal labor regimes abroad, and is morally and environmentally reprehensible. A globalized food system is unsustainable and undesirable, and so on. It has been funny to see the about-face as we demand our low-cost Chinese goods and wintertime raspberries.

For example, Rue Saint Paul, a “sustainable collective” clothing boutique in the Cobble Hill neighborhood of Brooklyn, near where I live, prides itself on sourcing its garments from brands with ethical labor standards. The “about us” section on the shop’s website claims that “guided by our sustainable values… our mission is to help reduce the fashion industry’s environmental footprint, promote ethical manufacturing, and drive responsible and circular consumption.”

Yet shortly after Liberation Day, Kelly Wang, the Rue Saint Paul owner, took to Instagram to lament the tariffs’ disastrous potential consequences for her business and to say, sarcastically: “But surely you can unwind decades old global supply chains in a week, new US factories will be opening tomorrow, millions of new jobs will be created instantaneously, prices of domestically made goods will be cheaper, and all of our paychecks will double. It will all be GREAT again.” Does Wang really think that the global supply chain is awesome, and that we should get everything we want “tomorrow” or “instantaneously,” or else it’s not worth it? The stance is at odds with the brand’s ethos.

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By Valerie Stivers

Wang did not return my calls by deadline, but she spoke to the website Gothamist to further explain the negative effects the tariffs would have on her business. Surprisingly for a sustainable boutique in the white-hot “shop-local” center of Brooklyn, 70% of Rue Saint Paul’s merchandise comes from abroad, including its best-selling item, a pair of “two-toned, color blocked” trousers made in China, that currently sell for $200 and will have to be priced at closer to $400 once Wang has to restock them at a higher price. (This is assuming that the Chinese manufacturers won’t eat the price difference, as Trump promises).

Rue Saint Paul offers meaningful and original sustainability initiatives — it allows shoppers to “rent” clothing for short periods of time, and it offers “buybacks” on its wares once you’re done with them. Yet like almost all high-end, ethical businesses, these values mask its promotion of a fundamentally unchanged consumerism. The obvious most-sustainable option would be for Brooklyn women — not a demographic with small wardrobes — to buy fewer pairs of color-blocked pants. Making them cost $400 instead of $200 doesn’t seem like such a terrible idea.

This idea comes to mind frequently when reading about tariffs and the impossibility of manufacturing in America. The Smarter Scrubber grill brush guy explains his failed quest to entirely source and make a grill brush locally — he tried, and it can’t be done; we don’t have the manufacturing capacity for one of the parts. Elsewhere, a manufacturer explains that he can fabricate the plastic parts for his custom department-store coat hangers locally but can’t get the metal hooks.

One can’t help but think of the vast number of hangers and grill brushes already in existence, all destined for landfills due to the lack of secondary markets. We have enough grill brushes and hangers for 1,000 years, if only we could reuse the ones in existence. Second-hand dealers, incidentally, expect tariffs to be good for them. One such merchant I spoke with, Kevin Walla, co-owner with his father of A Perfect Piece consignment business in Manchester, Vermont, noted uncertainties about the market but was generally expecting an uptick in sales within a six- to 12-month timeframe. “From a green perspective,” he says “buying second hand means less carbon released from the production of new items.” During the 15-year run of his business, Walla has “consistently” seen greater supply of second-hand goods than demand for them. Imagine if that could change.

Sustainability advocates have often made the austerity argument when it comes to animal proteins: meat is resource-intensive, and to produce it ethically is expensive, so the price should reflect reality, and we should eat meat sparingly. Another endangered business mentioned in the Gothamist story is Aqua Best Seafood, which “services 80% of the Michelin-star restaurants in New York City” with items like salmon from Norway, branzino from Turkey, dorade from Greece and red snapper from Japan. Will Michelin diners still be able to get their imported fish at a good price post-tariff? Well, should they be able to?

A cookbook I like very much, One Pot, Pan, Planet, by Anna Jones, instructs its readers to “consider food miles” when making our purchases, and to consider eating fresh, seasonal foods mostly when they’re in season. Higher prices on imported luxury fish would probably turn such products into what they ought to be in the first place: a splurge and an indulgence.

There are many obvious objections to this line of thinking, including that it’s not really what Trump says he’s trying to do, and that the massive recession from less consumption would be so devastating that we’d regret we tried it, no matter what our values. There’s also the argument that higher prices unfairly affect people with lower incomes, who spend a greater proportion of their money on basic goods, and can least afford the increases.

To this, it seems essential to point out that a large share of the Walmart demographic voted for Trump, and has shown considerable loyalty to him. They might — might — be open to undergoing economic pain for a perceived good cause down the road. Low-income people are also the ones disproportionately affected by our addiction to cheap, ill-made goods — they’re the ones with the awful Amazon delivery and DoorDash jobs; they’re the ones who suffer most when the made-in-China backpack breaks the first week.

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The most reasonable consensus seems to be that the American “manufacturing jobs” the Trump voters long for won’t fix these problems — we’ll never beat the likes of China and Vietnam, and much of this labor will be done by robots now anyway. But it also might be true that Trump’s voters don’t really want “manufacturing jobs” in the sense that they have a burning need to mine coal or operate a robot arm. The term might stand in for stable, well-paid, meaningful work and goods that don’t suck. And these goals, actually, align with those of their cultural opponents. Surely this is an opportunity for significant reform of a universally hated system.

Katrina Caspelich, the CEO of Re/Make World, a nonprofit devoted to climate justice and fair pay in the clothing industry believes that tariffs will bring us further from these goals. She believes that large, fast-fashion brands — 100 billion new garments produced each year, most ending up in landfills within a few years — will be able to evade the tariffs by moving their production around quickly, and already-marginalized garment workers abroad will be the ones to bear the real costs. Small businesses like Wang’s, engaged in “thoughtful production and long-term supplier relationships,” won’t survive, Caspelich thinks, while fast fashion will.

Maybe, but Re/Make, among other initiatives, challenges its supporters to do a 90-day #NoNewClothes fast that will “reduce your carbon footprint,” “keep your money out of the pockets of exploitative companies,” and “limit waste you send to a landfill” — basically, just don’t shop for three months. Such initiatives are virtuous in theory, but obviously in practice haven’t changed consumer habits. Tariffs just might.

Trump has been unfazed by such warnings, glibly stating that children will “maybe” have fewer “dolls” than they used to. And for those who believe Trump is playing four-dimensional chess, fundamentally shifting the makeup of the American economy, decoupling from China, and reducing the overall trade deficit — all this is worth the pain. This, even as few of these cheerleaders have indications of what it is that Trump wants America to produce more of, and fewer still have realistic estimates of how long it will take to achieve all these ends.

The problem is that stagflation isn’t a blip or temporary “market correction” from which it will be easy for the US economy to emerge with greater dynamism. Rather, it is a series of mutually reinforcing negative trends that sap the willingness of firms to expand while progressively exhausting purchasing power for household essentials. That leaves less money in the economy for hiring and training, innovation, and the productive risk-taking Trump purportedly wants. Unless he imposes price controls and leans on the 1950 Defense Production Act and other emergency measures — “statist” decisions which even a MAGA-fied GOP is likely to denounce — Trump has no Plan B to simultaneously restrain costs and compel industries to reshore.

Many, then, have remarked that Trump’s main economic policies will have the opposite of their intended effect of reinvigorating the US industrial base. But there is another irony here. Despite his unflagging drive to browbeat firms and the Federal Reserve into supporting reindustrialization, this radical “conservative” President may soon encounter what all progressive and Left-wing governments have feared since the “great inflation” of the Seventies: a capital strike. In other words, the CEOs and financiers who rallied to Trump in 2024 may decide his whims are too disruptive to stay onboard — and that his apparent indifference to their profit margins, logistics, and ability to reasonably plan investments aren’t worth the candle.

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The Left can’t go back to free trade

By Justin H. Vassallo

The darkening forecast for growth precipitated so single-handedly by Trump’s management and priorities certainly has no modern precedent in US politics. But the deep uncertainty at all levels of the economy also underscores how difficult it is to alter, much less dramatically reverse, globalization. It is much easier to transfer supply chains from high-wage countries to low-wage ones than the other way around.

During Trump’s first-term trade war, Vietnam, not the US Rust Belt, was the primary beneficiary of high tariffs on China’s exports. Unless Trump resumes some of the punitive rates he paused after his “Liberation Day” tariff formula was roundly maligned, capital expenditure will be rerouted to other emerging markets — some of which the Biden administration tried to cultivate as part of its own “friend-shoring” strategy of Chinese containment. Yet swinging back to a uniformly aggressive tariff regime could rock the global economy, needlessly punishing foreign workers in textiles, small appliances, toys, and other entry-level sectors while precipitating shortages for American consumers.

Trump’s isolationist tendencies — which aren’t congruent with a positive of vision of economic nationalism — are also impeding efforts to improve America’s global share of manufacturing. Trump needs the cooperation of allies he’s gravely alienated if he intends to effectively curb Chinese trans-shipment of inputs that he wants American firms to make. However, neither he nor his closest advisers appears temperamentally prepared to make that case. Likewise, it seems impossible for them to accept that “near-shoring” of key components with strict limits on Chinese content is preferable to China’s increasing command of critical supply chains.

In turn, Trump’s constant jaw-boning could result in fewer concessions of a strategic nature. Trade barriers without multilateral coordination that fosters “reciprocal” industrial policies and content standards among close allies will do more to isolate America than insulate it from practices which undercut its manufacturers. While some unfair trade practices can be addressed by eliminating loopholes like de minimis, which allowed Chinese producers to sell and ship goods valued $800 or less directly to American consumers, Trump still lacks a plan to persuade multinationals and mid-size firms to transition away from third-party suppliers that perpetuate dumping and other harmful practices.

The ostensible carrot in all of this is Trump’s insistence that lower corporate taxes and deregulation will lure foreign investors to build in America. On the face of it, the logic is quite simple: if major foreign competitors want to avoid tariffs, they should treat the US labor market as worthy of investment. But Trump has not pursued the types of industrial policies that Biden launched, which could convince more foreign firms of the benefits of doing just that. There are clear downsides to Trump’s approach, too. The risks posed to workplace safety and pollution standards are worrisome enough, but there is also the matter of business’s confidence in America’s domestic political stability and the skill-level of its workers.

Contrary to the libertarian notion that enterprise wants only a nightwatchman state, fanatical deregulation and slashing state capacity are not particularly encouraging for firms concerned with high-value-added manufacturing and standards compliance across the supply chain. In fact, the Left-wing school of thought which critiqued “corporate liberalism” delineated why a strong administrative state was integral to making and stabilizing modern American capitalism. While some government policies have made it onerous to build efficiently in America, new research indicates that DOGE’s actions and similar cuts to federal research and development are likely to retard growth and make Americans significantly poorer, compounding the near-term losses imposed by passed-on tariff costs.

All else being equal, that will have a chilling effect on long-term fixed investment. Many companies will doubt that the broader political economy, which already favors financial rents over productive investment, and which Trump seems unwilling to reform in this respect, will justify opening new plants and keeping them operational for decades.

Given the limited policy options the Trump administration is working with, there are few other levers to pull. Trump may create enough instability in the interim to significantly lower the dollar’s value, theoretically enhancing the competitiveness of American manufacturing. A possible analogue here is the 1985 Plaza Accord orchestrated by the Reagan administration, which temporarily boosted American exports, albeit at considerable cost to developing nations that had piled up debt to diversify their economies. However, America’s industrial capacity is far more diminished than it was after the 1981-1982 Volcker Shock and ensuing recession, again illustrating the “input” dilemma created by decades of offshoring. Trump wants to replace foreign inputs with American-made ones, but a weaker dollar would make plant investment more costly, since to some extent the country needs to temporarily increase imports of capital goods to efficiently rebuild domestic supply chains.

Some may counter that the dollar has long been overvalued, and that this has worsened inequality by rewarding short-term financial gains, favoring consumption of cheap imports, and eliminating the pathways to middle-class prosperity historically provided by American manufacturing. In fact, Sen. Elizabeth Warren (D-Mass.) and other prominent voices on the progressive Left made these arguments in the last decade. Yet Trump has not signalled how a weaker dollar in the current context would reduce, rather than exacerbate, international supply chokepoints. Nor has he indicated in the slightest how it would translate into a less financialized economy. Tanking global confidence in the dollar — and US Treasuries as a safe haven — is not a recipe on its own for curbing speculative finance, which Trump has otherwise encouraged through his alliance with the libertarian Tech Right and support for cryptocurrencies.

In the meantime, it is possible the early phase of stagflation is already unfolding. In anticipation of broad price hikes from tariffs, consumers binged on spending the last two months, likely masking the extent to which a slowdown has been set in motion by Trump’s capricious strategy to boost domestic industry. Unease over supply costs, meanwhile, has further reduced manufacturing orders and output, according to the Institute of Supply Management, a leading industry association. On the positive side, the hiring freeze detected last year appears to be gradual, unemployment remains low, and the last two job reports were better than expected. But the long-term jobless still number 1.7 million people, or nearly 1 of 4 unemployed workers; that level, reached last November, is a half million more than a year ago.

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As falling consumer confidence underscores, spending is based on fears of rising inflation, rather than optimism about wages and spending power, and that tariffs are cooling, not spurring, plant investment. Historic levels of household debt also suggest necessities are eating into disposable incomes. That is not an auspicious sign for manufacturers worried about whether new investments will be met with stronger demand. Another consecutive quarterly contraction would officially mark a recession, which is increasingly accepted as a fait accompli by many analysts.

Trump, of course, mounted his unexpected comeback in 2024 due to widespread disgruntlement with Biden’s economic performance. Despite a suite of policies that fueled an uptick in plant investment and construction, Biden and his anointed successor, Kamala Harris, couldn’t escape the ire over the drop in real incomes from 2021 through mid-2023. Thus far, Trump’s policies promise another decline in real wages without either the Biden-era regional investments or the tight labor markets that helped the economy rebound faster from the pandemic. Considering Team Trump still partly frames tariffs as a tool for negotiation, it is conceivable they will eventually retreat on the basis of some symbolic concessions by major firms and trade partners to support more balanced trade.

However, it is not beyond the realm of possibility that Trump will keep a stubbornly tough tariff regime in place and eventually force American firms and consumers to adjust. US Presidents, particularly Republicans, are caricatured as fearing experiments that spark market volatility and derail consumer sentiment. But the unfading populism of recent years has prompted leaders from both political parties to take protectionist risks considered irrational during an earlier, more painful stage of industrial decline in the late 20th century. That pattern is unlikely to change anytime soon, despite immense pressure from Wall Street to scrap radical changes to how America does business with the world.

That doesn’t mean Trump or his heirs will emerge victorious after the initial economic shock. Americans are paradoxically wary of major changes to the modern consumer economy and voting for politicians promising major disruptions to the status quo, and they may continue to punish incumbents for results that do little to improve their own sense of economic security. While Trump has taken an axe to globalization’s main pillars, it may be a Democrat who ultimately capitalizes on the outcome. The question, then, will be whether they try to turn back the clock or refine the unfocused autarky Trump has embraced.

There is much to lament about Trump’s reckless approach, not least his unsound and punitive formula for calculating tariff rates. But there is a reason we are here: the old trade order plunged millions of working-class Americans into misery and precarity, impelling a decisive share of them to elect Trump twice. As far as they’re concerned, there is no going back to a system that, in the words of United Auto Workers leader Shawn Fain, turned once-proud industrial centers into “blast zones”.

Influential pundits such as Matthew Yglesias and prominent Democrats such as Colorado Gov. Jared Polis are bent on getting Democrats to reaffirm the superiority of “free trade”. But they are misguided about what this moment calls for. Instead of simply denouncing Trump’s agenda, progressives must stand for a holistic trade policy that reimagines development at home and abroad.

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Trump’s ‘Liberation Day’ will fail

By Justin H. Vassallo

Not long ago, progressives were clear-eyed about the fictions and concealed costs of liberalized trade and global economic integration. In the Nineties, labor unions, environmentalists, and anti-sweatshop activists warned against the “race to the bottom” of globalization without basic guardrails to limit pollution and prevent human-rights abuses. Distant, multi-stage supply chains portended ecological damage and the severe coercion of vulnerable foreign workers, including children, while unfettered import competition in an era of shrinking public investment threatened the foundations of working-class security at home.

These concerns usually met with indifference in Washington, despite growing evidence that new trade agreements disproportionately benefited powerful multinationals and were riddled with opportunities for exploitation. Echoing President John F. Kennedy, who believed deeper trade would bolster America’s Cold War alliances, mainstream economists assured that global growth would bring prosperity for all.

It was a utopian promise, backed by technocratic models and clever political stagecraft.

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The benefits, even to the developing world, were overstated. Remove China’s share of the global middle class, and poverty reduction over the last 25 years looks far less encouraging. While there are fewer “least developed countries” today than there were in the year 2000, the World Bank reports that middle-income countries, which include over 60% of the world’s total poor, are struggling to diversify their economies and improve their developmental outcomes.

The main obstacles are becoming more, not less, insurmountable. Although Covid restrictions, a strong US dollar, and higher interest rates have sunk expectations for global growth this decade, the People’s Republic’s massive export dominance is a central factor in this story. The “China Shock” — once thought to be an unfortunate byproduct of US-China trade limited to the American Rust Belt — has spread to other parts of the world, in some cases undermining the transition to advanced manufacturing. Particularly in sub-Saharan Africa, this has led to what the economist Dani Rodrik calls “premature deindustrialization”. (Notably, this trend has no discernible upside in terms of lower greenhouse-gas emissions, biodiversity, soil health, and potable water.)

On the domestic front, meanwhile, Trump has shrewdly exploited the failure to create good new jobs to replace the ones lost to free trade. Presidents Bill Clinton, George W. Bush, and Barack Obama championed tech-driven global commerce. But the promised jobs boom in tech, professional services, and advanced manufacturing never materialized. Each recession since 1990 has resulted in a so-called jobless recovery, whereby lost skilled work is not made up for through new opportunities in emerging industries. Americans without college degrees, still over 60% of the electorate, are now predominantly underemployed or hold multiple low-wage jobs.

These developments markedly changed the country’s economic geography. While inequality in the United States has always had a distinctly regional dimension in addition to race and gender, globalization has amplified the concentration of economic power by class and zip code, rather than dispersing it. Small industrial cities and rural areas across the Greater Midwest and South have suffered the most, fueling populist resentment.

Conditions aren’t much better for America’s middle class, even within the perimeter of prosperous liberal-leaning metros. A college education — an increasingly unproven ticket to upward mobility — now costs a fortune, and debt-laden graduates have swelled the ranks of precarious service and gig workers since the Great Recession. Rent inflation and the housing shortage have all but transformed major coastal cities — the main engines of growth prior to Covid — into upper-income enclaves.

Deindustrialization and the country’s worsening trade deficit aren’t, in every instance, the direct cause of these crises. Deregulation and weak antitrust enforcement have played their part. But economic hardships stemming from trade policy are interwoven with most of the other factors driving inequality, including shareholder buybacks, short-term profit-seeking, needless tax breaks for the wealthy, and the clout of venture capitalists who increasingly determine when, where, and how business investment happens.

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Democrats are wasting a populist moment

By Justin H. Vassallo

A progressive trade policy would dramatically overhaul a system that has privileged non-productive investment and upward redistribution. It would rebuild the country’s industrial base and create opportunities in places starved of them. But in sharp contrast to the current administration, such a vision would aim to eliminate financial loopholes, stop the use of tax havens, and enforce the labor, health, environmental, and safety regulations whose absence would revert America to the harsh industrial conditions of the Gilded Age.

Apologists for the new trade war claim that the “one-time price adjustment” Trump is imposing will be soon offset by a rollback of business and environmental regulations, thereby creating more favorable conditions for new factory construction. Their argument rests on this basic equation: excessive regulations have made it even harder for domestic industry to compete with cheap imports, and the regulatory obstacles to new investment outweigh the impact of dramatically raising the cost of foreign inputs and semi-finished goods via tariffs.

Ironically, the “abundance liberals” most vehemently opposed to industrial protectionism tacitly agree with the Trump administration that the permitting process is in desperate need of reform if America is to build more housing, bolster energy independence, and make it easier to grow small and mid-size businesses. To be sure, there are cases of regulatory bottlenecks needlessly delaying or preventing large-scale projects that benefit working-class Americans. Yet it is the broader pattern of outsourcing, short-termism, financialization, and regional disinvestment in worker training — not, say, clean air and safety standards — that are most to blame for the fact that it is impossible to produce an array of tradable goods in America.

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In contrast to a plan which would sacrifice US labor and environmental standards, progressive trade policies would have real teeth when it comes to international standards. Fair-trade advocate Lori Wallach, now director of Rethink Trade, a new think tank, has long maintained that many Left-of-center global policies — carbon restrictions, barriers to trade dumping, and laws against forced labor — amount to targeted tariffs.

This is neither extreme nor a measure of last resort. Sensible tariffs can directly and indirectly buttress a host of standards and norms that Western societies take for granted, and that trade unions over several generations fought for. The goal of trade policy should be to accommodate the right of poorer countries to develop, without undercutting modern taboos against forced labor, servitude, and reckless extraction.

Here, though, would be another opportunity to draw a distinction with Trump’s short-sighted and isolationist tendencies. As opposed to a massive tariff wall, progressives could deploy a mix of carrots and sticks similar to those used to stoke domestic reinvestment. Routine bad actors on child labor, for example, would be excluded from favorable trade relations, and antitrust law could be conceivably wielded against companies that try to circumvent “social” or environmental tariffs. But the US government would also recommit to supporting state capacity, the rule of law, and humane working conditions in countries that aspire to surpass the “millennium development goals” enunciated by the United Nations at the turn of the century.

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That would entail reversing DOGE’s life-threatening cuts to international aid. Yet it would also ideally involve other measures to restore US credibility on the world stage. If America is to repair the damage this administration has already caused, a future progressive government needs to demonstrate unequivocal support for renewable energy abundance (very much including nuclear power), food security, and workers’ rights in developing regions.

In spirit and name, this would be a chance to repudiate the country’s past support for policies which constrained and sometimes crushed movements for economic democracy in the Global South. At the same time, a new progressive trade paradigm must readily eschew the elitism and policy incoherence that have tainted the environmental movement in the eyes of ordinary Americans and working and lower-middle classes across the Atlantic. Following years of austerity, workers need to be assured that a different trade regime combining national economic priorities and global standards will markedly improve their livelihoods and communities, not lower their sights further.

Harmonizing these domestic and international goals has often eluded the US government in the past. The accelerating fallout from Trump’s abysmal international posture promises to make it more difficult still. Progressives, however, have little choice but to recognize the full complexity of trade policy — and to develop solutions to the disappointments and betrayals that have led to this stunning rupture of the postwar order.

Nothing less than global peace, prosperity, and democracy depend on it.

The damage will not be limited to financial markets. Around half of all imports into the US homeland are used by American manufacturers as inputs to produce goods. By increasing the costs of production, Trump’s tariffs will reduce the competitiveness of US manufacturers. This will destroy manufacturing jobs, not promote them. Higher consumer prices from tariffs and trillions of dollars of wealth destruction will reduce consumer spending, threatening recession and rising unemployment. Uncertainty will freeze business investment, likely leading to layoffs. US manufacturing exporters will be hit hard by any foreign nations that choose to retaliate.

Some of the president’s closest advisers are true believers in protectionism and are likely surprised by the market’s reaction over the last three trading days. They may still believe that Trump’s policies will eventually produce beneficial results. They’re wrong.

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How can the president pivot? Three alternatives present themselves.

First, the president could declare victory. European Commission President Ursula von der Leyen offered Washington a “zero-for-zero” tariff scheme today. Trump could accept her offer. The Japanese leadership has likewise signaled a desire to reach an accommodation. Other nations would follow. Trump could herald himself as having successfully struck great deals for American workers and businesses while taking a step back from the ledge of economic self-harm.

Second, he could alter the calculations used to derive the tariff rates. Team Trump has published the formula it used to calculate reciprocal tariffs. That formula has parameters that need to be selected, and administration economists turned to the research literature for the best parameter values. But the co-author of one of the key papers on which those administration economists relied, Alberto Cavallo of Harvard Business School, correctly pointed out that the administration picked the wrong value from his paper.

“While the [US Trade Representative] tariff calculator cites [our] findings”, Cavallo wrote, “it is not entirely clear how they use our findings. Based on our research, the elasticity of import prices with respect to tariffs is closer to one. If that figure were used, instead of 0.25, the implied reciprocal tariffs would come out about four times smaller.”

This mistake has big implications: the reciprocal tariff rates that the administration calculated are four times are large as they would have been if administration economists had picked the correct parameter value from the paper.

My American Enterprise Institute colleagues Kevin Corinth and Stan Veuger calculated corrected reciprocal tariff rates, using the administration’s formula and the right parameter values. According to them, the administration should be applying 10 percent tariffs for imports from key allies, including Taiwan, South Korea, Japan, Israel, and the European Union. That is instead of the astronomical figures in the “Liberation Day” document that caused hearts to sink among political and business leaders the world over, and sent equity prices on a downward spiral.

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In response to this, the president could announce that the administration spent the weekend refining its calculations. He wouldn’t have to walk back his methods or even throw any staffers under the bus; he could simply announce the new rates.

Cards on the table: I support free trade, and I would like tariff rates to be much lower than the levels at which these calculations would leave them. But applying the formula correctly would be a good start. Subsequently, as more foreign leaders follow the example of von der Leyen in offering zero-for-zero, the president could lower tariff rates to zero.

Third, Trump could announce an immediate pause and follow up with a decision to roll trade policy changes into his plans for tax reform.

To avoid a massive tax hike this year, when key provisions of Trump’s signature 2017 cuts expire, Congress and the president must act. They could take this opportunity to overhaul the tax system by replacing the corporate income tax with a national consumption tax and a tax on business cash flows. By allowing the full expensing of business investment, this would accelerate productivity growth and raise the wages of working-class Americans.

Because some consumption goods are imported and some domestically produced goods are exported, such a tax would require a border-adjustment provision in which imports would be taxed and exports would not be.

This is not a tariff, but it sure resembles one. It would generate a lot of revenue. And unlike the administration’s current tariff policy, it would boost growth. The president could argue that this border adjustment satisfies his campaign promises and his goal to strike a better deal with other nations when it comes to international commerce.

I don’t see the problems with the economic situation of typical workers that the president sees. But even if I did, I would want to see Trump pivot from his current policy, because higher prices and more unemployment are bad for workers.

Trump has the opportunity to pivot. For the sake of the working class that sent him back to the Oval Office — and of the nation as a whole — I hope the president takes it. Some in the media, Left and Right, would no doubt crow. But there is greater heroism in reassessing a position in the face of evidence than in obstinacy.

His solution is equally blunt. He and his advisers insist that aggressive, universal tariffs, combined with deregulation and corporate tax cuts, will render cross-border supply chains less lucrative and domestic investment attractive for business.

The problem is that virtually every other Trump action since Inauguration Day has undercut the state capacity needed to rehabilitate core industries and shepherd capital and labor towards new ones. Instead of leveraging state power on behalf of massive public-private projects, research and development, and workforce training, Team Trump has subjected government agencies to DOGE’s ruthless budget cuts, and frozen funds from or threatened to terminate President Joe Biden’s flagship industrial policies.

The Trumpians are plotting to privatize a host of government services, and have sent a chill through research institutes vital to breakthroughs in advanced medicine, technology, and manufacturing. Meanwhile, the administration has largely crippled antitrust enforcement, thereby favoring powerful monopolies that can withstand or circumvent trade barriers over mechanisms to coax healthy domestic competition and investment.

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By Justin H. Vassalo

None of these actions furthers the purported aims of tariffs and targeted export controls: to create good jobs for the forgotten working class and turn depressed regions into desirable places in which to work and live. On the contrary, slashing and burning state capacity will hinder these goals. Most damningly, the Hamiltonian tradition the Trumpians claim to champion is a powerful witness against the belief that a crippled state can boost manufacturing.

These shortcomings haven’t stopped some of Trump’s most vehement critics on the labor Left, not least United Auto Workers President Shawn Fain, from conceding that he is partly right on trade. The bipartisan Washington establishment of the late 20^th century made a colossal mistake in offshoring millions of jobs on the naive assumption that high-tech innovation and services would replace manufacturing, the historic engine of American upward mobility and growth.

But despite being motivated by fear over China’s phenomenal rise, Trump’s strategy has proved mostly incoherent, not to say contradictory, sowing serious doubts over whether America, after decades of outsourcing and regulatory capture by major multinationals, has the institutional know-how to meet the new president’s promise of industrial renewal.

Trump’s approach isn’t merely myopic, though — it betrays the legacy of the GOP statesmen whom champions of his tariffs regularly invoke to defend the current administration.

The populist Right’s evangelism for Trump’s protectionist impulses has long rested on the notion that he is boldly reviving the “American System” school of economics. This tradition stretches from Alexander Hamilton in the founding era and Henry Clay in the early republic to the heterodox economist Henry Charles Carey, the influential lawmaker Justin S. Morrill (architect of Civil War-era tariffs), and Presidents William McKinley and Theodore Roosevelt. These Republican statesmen and thinkers espoused a doctrine of development premised on diversified manufacturing, vast energy sources, scientific progress, and spreading education in the “industrial arts”.

Scholars describe this doctrine as unabashedly mercantilist. Yet 19^th-century Republicans maintained that it furthered the country’s founding ideals of self-government and associationalism: the notion that an industrious, republican citizenry will form voluntary organizations conducive to promoting shared interests that transcend divisions by region, sector, or class.

Neither laissez-faire nor statist, the old GOP that supposedly inspires Trump fused support for large developmental goals from disparate parts of society — inventors, aspiring industrial magnates, prospectors, advocates of “scientific agriculture”, financiers, and tradesmen. The intent was to spread commercial hubs built on regional interdependence, raising manufacturing and agricultural output while also curbing demand for goods from competitors like Victorian Britain.

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Tariffs underpinned this system by pushing farmers, merchants, and consumers to purchase US-made goods and support local industries. Post-Civil War, tariffs underwrote pensions for Union Army veterans and their families (then a huge constituency of the GOP). Tariffs were also meant to lessen the competitiveness of imports made by foreign “pauper” labor, attracting the support of skilled workers who had few other avenues to stable wages.

Like Trump, the Republican leaders of a distant epoch believed high tariffs were a means to building national wealth and power. And their aversion to foreign competition ran deep. Cheap foreign goods were, in modern parlance, the real source of “market distortions”, because, unchecked, they made profitable manufacturing less viable and threatened the livelihoods of skilled workers.

Even Republican reformers who, like Theodore Roosevelt, were more attuned to the daily needs of thrifty households and worried that tariffs had given rise to unaccountable monopolies tended to believe that free trade was decadent. On the verge of America becoming a world power, Roosevelt remarked that “pernicious indulgence in the doctrine of free trade seems inevitably to produce fatty degeneration of the moral fiber”. Trump’s Treasury secretary, Scott Bessent, was channeling the same sentiment when he asserted in a recent speech that “access to cheap goods is not the essence of the American Dream”.

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But this is where the similarities end. In fact, depicting Trump as a descendant of the old protectionist pedigree misses an important dimension of past Republican thought. From the Lincoln era to Eisenhower’s, Republicans deployed a range of policies besides tariffs to stoke development and progress. The party’s Trumpian incarnation entirely ignores these other strategies, when it doesn’t undermine them.

Take the legacy of Morrill, the lawmaker who, in addition to protective tariffs, authored the legislation that created America’s exemplary land-grant colleges. Morrill well understood the relationship between education in fields like agronomy and engineering and productive innovation. The Homestead Act from the same period, which distributed public lands to frontier homesteaders for a nominal fee, likewise reflected the GOP’s belief in the importance of “decentralized” economic growth for a democratic society.

By contrast, Trump’s sweeping cuts to university grants, including for regional public universities that serve his rural base, disregard the country’s pressing skills shortage. Meanwhile, his lofty campaign pledge to build 10 “freedom cities“, still embryonic, evokes not so much the producer populism of westward expansion, but the dystopian “startup societies” dreamt up by Silicon Valley — or a Middle Eastern petrostate.

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The administration’s axiomatic contempt for regulation is also not in keeping with the GOP’s historical view. Reductive histories portray the GOP as always preaching “small government”. But the party once had vigorous debates about the purpose and scope of regulation.

Despite occasionally assailing corporate malfeasance and grilling feckless CEOs in congressional hearings, today’s Right-wing populists have yet to match the Republican “insurgents” from the party’s Roosevelt wing, including the likes of Sens. Hiram Johnson and George Norris, who pushed for corporate regulation, public works, public utilities, and direct democracy, and took a stand against corruption. Though they were rarely “redistributive” in the social-democratic sense, such positions aimed to prevent abuses by the politically connected and to give working people a material stake in democracy.

Earlier Republicans were also quite experimental in their time. President Herbert Hoover, forever marked by his loss to Franklin Delano Roosevelt for failing to alleviate the Great Depression, was, during his earlier tenure as Commerce secretary, a consummate technocrat who sought to deepen cooperation between various government bureaus and business associations to make policymaking more scientific.

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In stark contrast to DOGE’s modus operandi, Hoover’s efforts to reorganize government were founded on a belief in expertise and the legitimacy of using regulation to make markets more rational; the development of America’s burgeoning aviation sector, improvements in radio technology, and national business standards for product sizes were among his achievements.

Hoover was hardly a central planner. Judged by the current GOP’s ethos, though, his record of bureaucratic oversight epitomized the growth of the modern administrative state.

Of course, the New Deal realignment, which hobbled the GOP’s support for a generation, cemented the popular view that Republicans regularly opposed active government. But until the Reagan era, most mainstream Republicans accepted the New Deal order, occasionally endorsed breaking up monopolies, and eagerly supported generous federal funding for science and technology, even as they ritually affirmed the principle of “free enterprise”.

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Most famously, the Eisenhower administration’s vast Interstate Highway System updated Republicans’ past support for “internal improvements” for the Cold War era, further propelling the rise in suburban homeownership that characterized the postwar boom. And progressives’ arch-bogeyman Richard Nixon, now frequently regarded as the last “New Deal president”, signed NEPA and OSHA, the country’s landmark laws, respectively, for environmental protection and workplace-safety standards.

In short, major players in the Republican Party adopted a more flexible and interventionist view of political economy than is commonly recognized. Most MAGA influencers today would no doubt dismiss such evidence as not reflecting “true” Republicanism. Partisan progressives would similarly concur, at most allowing that “progressive Republicans” are extinct because the Democratic Party became their natural home.

This is to be expected. A few conservative think tanks and public intellectuals have sought to create a genuinely “pro-development” and “pro-worker” agenda for Republicans. But the anti-government tirades of Newt Gingrich, anti-tax activist Grover Norquist, and their successors in the Tea Party movement did much to fix the partisan battle lines of the last few decades, few of which the MAGA movement has redrawn besides disavowing George W. Bush’s embrace of globalized trade.

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Trump’s GOP is thus fixated on slashing and burning its way through the state, rather than restoring faith in positive government. For a little while, even skeptics allowed that a new working-class base, plus rising tensions with Beijing, might push Republicans to embrace an industrial strategy that recovered some of their party’s authentic traditions of domestic progress.

That possibility has come to naught. While Trump proclaims “liberation” is imminent, the rapid loss of state capacity under his watch promises anything but. Tariffs excepted, there is little concrete government action to compel market forces to meet national economic objectives, and the GOP has bent over backwards to accommodate banking lobbies vociferously opposed to even minor restraints on financial predation.

One hardly needs to be a radical populist to see this doesn’t bode well for American society. As the most perceptive believers in the “American System” understood, an economy that fails to maximize its productive forces and promote workers’ well-being is destined to wither. If America is to avert permanent decline, it needs leaders determined to prevent the spread of servitude masked as “liberty”.

That sounds like a script for a trade war, but it may not play out this way.

Chinese tech stocks have rallied sharply in recent days, and Beijing shows little inclination to escalate relentlessly in response. This is because both Washington and Beijing know well that the old bilateral China-US trade relationship is untenable. Under that arrangement, US consumers underwrote China’s industrial might at the expense of America’s domestic manufacturing sector. It was the product of a neoliberal consensus that has proved deeply unpopular with the working-class and lower-middle-class Americans who form the Trumpian GOP’s base.

In short, the old free-trade regime isn’t coming back, and both sides are making plans accordingly. Trump may reduce tariffs on Chinese goods in exchange for stronger action to curb illegal immigration and opioids, or other concessions. Commerce Secretary Howard Lutnick said on 5 March, “I think [Trump’s] going to figure out, ‘you do more, and I’ll meet you in the middle some way’. And we’re probably going to be announcing that tomorrow”. Hong Kong’s tech stock index, which traded flat until just before Tuesday’s close, jumped 10% in the three sessions after Lutnick’s remarks came across the wire.

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“There’ll be a little disturbance. But we’re okay with that. It won’t be much”, Trump said of the impact of tariffs in his address to a joint session of Congress. Contrary to the remonstrations of Lawrence Summers and other neoliberal economists, he well may be right.

Here’s a back-of-the-envelope calculation of the impact of tariffs: in December 2024, the American economy imported $250 billion worth of goods, while retailers sold $650 billion in goods. Imports are about 40% of retail sales. If the average tariff is 10%, and half of that 10% is absorbed by exporters to the United States, the resulting impact on the price level for imports goods would be 5%. In turn, 5% of the 40% import share in retail sales is 2%. Goods comprise roughly half of the Consumer Price Index, so the impact on overall inflation would be around 1%. (Of course, a great deal of imports are production inputs, rather than finished goods, but let’s assume that the cost is simply passed on to final consumers.)

That would be the “little disturbance” the President has mentioned. An average 10% tariff on $3 trillion a year of imports would yield about $300 billion in revenues, enough to put a meaningful dent into America’s $1.8 trillion budget deficit. This is the benign scenario.

There may be some collateral damage, in particular to business investment. The United States now imports more capital goods than it produces at home, and investment in equipment fell sharply at the end of 2024. Higher prices for capital goods due to tariffs might suppress investment and, perversely, make the US more dependent on imported goods. The administration will do its best to strike a balance between structural change and short-term economic sensitivities.

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Because so much of US manufacturing depends on foreign inputs, it will be hard for domestic manufacturers to replace imports with local production. If Trump ramps up the tariff to 25%, it would produce more than a little disturbance — perhaps a 5% increase in the average price of goods sold in the US — but a 10% rate is manageable. And there’s another factor working in Trump’s favor: foreign businesses may invest in the United States to avoid tariffs. Trump claimed in his speech to Congress that $1.7 trillion in foreign investment was already in the pipeline. That may be an optimistic estimate, but more foreign investment is a net positive for the US.

Still, there is reason to be anxious, and the White House will watch the impact of tariffs on the economy closely. Treasury Secretary Scott Bessent, a key member of the President’s inner circle, warned 25 February that the US had entered a “private-sector recession”. He added: “The previous administration’s over-reliance on excessive government spending and overbearing regulation left us with an economy that may have exhibited some reasonable metrics but ultimately was brittle underneath”.

Private investment began contracting in the last quarter of 2024. There are warning signs of economic weakness: the highest unemployment claims in two years and low employment growth in a private ADP survey; sagging consumer confidence according to University of Michigan and Conference Board surveys; and a sharp 0.9% fall in January retail sales.

Which brings us to China’s perspective. Chinese policy makers were initially hoping for a return to the 2020 “Phase One” deal, in which the Middle Kingdom agreed to buy an additional $200 billion worth of US products (though it fell short of that commitment during the Covid recession). Peking University’s Professor Yao Yang, a prominent Chinese commentator, told the Chinese news outlet Guancha: “We can also consider buying American oil and gas, especially natural gas. Our energy procurement also needs to be diversified, and we can import more agricultural products.”

But turning the clock back to 2020 now seems improbable. Beijing reads the same numbers as Trump and his team, and Chinese officials know that Washington can’t continue to run a $1.2 trillion trade deficit forever. As of 2024, the United States had a net international investment position of negative $24 trillion. That’s the amount of assets the United States had to sell to finance the last 30 years of trade deficits. What can’t go on forever, won’t. Aware of US vulnerability on this count, Chinese officialdom has now set aside its “Phase One” hopes.

And China is prepared. The first Trump administration was a wake-up call for Beijing, and it spent the past eight years reimagining its place in the global economy. As a result, the world trade landscape has shifted dramatically: it isn’t so much that the United States has decoupled from China, as much as China that has decoupled from the United States. China’s exports to the America have shrunk, while its exports to the Global South have doubled; it now sells more to the Global South than to all developed markets combined. And it sourced 53% of last year’s soybean imports from Brazil, compared to 38% from the United States.

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To be sure, China’s economic exposure to the US market — and America’s dependence on China for a wide range of products — is bigger than the bilateral trade data show. It’s true that US imports from China have fallen to less than $40 million a month, down from a 2022 peak of more than $50 million a month. However, US imports from the rest of the Global South have risen sharply. Crucially, much of US imports from Latin America and Asia are assembled in third countries using Chinese components, or come out of Chinese-owned factories.

For example, Vietnam — which is not subject to tariffs under the Trump regime — exports a quarter of its GDP to the United States, and imports the capital goods and production inputs to do this. There has been talk about imposing tariffs on Chinese content in imports from third countries, but that is impractical.

Bottom line: it simply isn’t in China’s interest to rock the boat. Beijing’s retaliatory tariffs on US agricultural products will shift China’s imports away from the United States and towards Brazil, which already provides China with more than half of its soybean imports. It will continue to shift manufacturing capacity to countries not subject to US tariffs, and its indirect exports to the US will compensate to some extent for the continuing decline of its direct exports.

While Uncle Sam and the Dragon look poised for a trade fight, their earlier decoupling, combined with the shifts in the global trade landscape, will likely avert the worst.