On April 2, President Donald Trump implemented the generalized tariffs that had been announced weeks earlier. The countries least affected by the measures will pay 10 percent for their products to enter the North American market. But the applied rates go up to 50 percent for some countries. According to the Trump administration, these rates are a reciprocal response to the tariff barriers that other countries supposedly impose on products imported from the United States. The European Union, a long-standing partner of the United States, will face additional tariffs of 20 percent, while for China they will be 34 percent. These rates will be added to the tariffs that are already in effect for these countries.
The markets, which have been showing signs of nervousness about Trump’s measures since the end of February, panicked with the confirmation of the president’s protectionist course of action.
What is the Trump administration’s plan with this tariff policy? What can it achieve, and what effects will it have?
Unprecedented
With the tariffs imposed by Trump, the U.S. economy will have the highest levels of tariffs in the last 130 years. For comparison, during the protectionist turn of the 1930s, which was one of the determining factors in the reversal of economic globalization — together with competitive currency devaluations and the ravages of the Great Depression, which began in 1929 — tariffs were lower on average than those implemented on April 2. The formula used to produce the rates affecting different countries is not directly related to the taxes, subsidies, or nontariff barriers that these countries apply to U.S. exports. Instead, the formula is much simpler and more arbitrary: it is calculated by dividing the size of the U.S. trade deficit with each country by the magnitude of U.S. imports from that country, and then dividing that number by two. A tariff floor of 10 percent applies to all trade in goods (services are not covered under these new tariffs), with a few exceptions, such as Russia, Belarus, Cuba, and North Korea. No one was spared from Trump’s tariff fury — not even territories inhabited exclusively by penguins, such as Australia’s Territory of Heard Island and McDonald Islands. Mexico and Canada are not on the list of affected countries, since they were already targeted last week with tariffs on shipments of cars, steel, and aluminum.
The tariff formula’s arbitrariness makes it difficult for countries to reverse “reciprocal tariffs” that they are not actually applying. As economist Michael Roberts explains regarding Vietnam,
[BLOCKQUOTE]America runs a U.S.$123bn deficit with Vietnam from which it imports U.S.$137bn. So it is deemed to have trade barriers equating to a 90 percent import tariff. The U.S. formula applies a reciprocal tariff of half that (45 percent), to reduce the bilateral deficit by half. Problem: Vietnam does not have a 90 percent tariff on U.S. exports, so it cannot avoid a reduction in sales to the U.S. by agreeing to reduce its “tariffs” on U.S. exports.
Hit and Negotiate?
Trump views tariffs as a means of generating negotiating leverage for making deals. It is easier to imagine that, after a series of punitive tariffs, trading partners like Europe and China will become more receptive to some form of currency accord in exchange for a reduction of tariffs.1Stephen Miran, “A User’s Guide to Restructuring the Global Trading System,” Hudson Bay Capital, November 24, 2024.
These were the words last November of Stephen Miran, an economist who since March has chaired the White House Council of Economic Advisers. Miran is among those advocating tariffs as a tool to compel other countries to accept a new “Bretton Woods” financial system. He argues that the strength of the dollar—stemming from its status as the world’s reserve currency and its high demand among investors and central banks globally—needs to be adjusted to attract investment back into goods-producing sectors in the United States. Similarly, Scott Besset, who was appointed secretary of the Treasury last year, predicted that “in the next few years, we are going to have some kind of grand economic reordering. Something equivalent to a new Bretton Woods. There’s a very good chance that happens in the next four years.” Besset claimed that while abandoning the international trade system would be “a major economic and strategic mistake,” the United States must urgently adopt “policies aimed at correcting the sources of imbalances in the international economy,” favoring “interventions at the macroeconomic level, such as broad-based tariffs.”
In this context, tariffs are a means of changing the rules of the global economic system in the United States’ favor. If this were the case, the current chaos would be driven by very specific goals, which do not include implementing lasting trade barriers, which, if persistent, could severely disrupt global economic integration and increase costs across all global production chains.
If this is the goal, it would be an attempt to replicate the events of the 1980s with the Plaza Accords. Named after the hotel where negotiations took place, these accords resulted in a commitment from Japan and Germany — the United States’ biggest economic competitors, and security partners — to pursue policies aimed at strengthening the value of their currencies against the dollar. Officials in the current administration envision “Mar-a-Lago Agreements” in which, to escape the dilemma of reciprocal tariffs, the United States’ primary competitors and trading partners would agree to help weaken the dollar. But the focus is not solely on the currency’s value; the goal is to negotiate a depreciation of the dollar against other currencies while preserving its status as the world’s reserve currency. This status grants the United States an unparalleled ability to make economic decisions without the restrictions that other countries face. A new monetary system could emerge if other nations agree to peg their currencies to the dollar at higher parity levels than current rates.
According to Miran, “if the dollar were able to weaken trade balance deficits, then we wouldn’t have a lot of the problems that tariffs and other policy issues are designed to address, because U.S. exports would be more competitive on the global stage and we wouldn’t be as cheated by other countries.” Thus, the tariff war would become unnecessary, allowing for a return to pretariff normalcy, with lower rates, once the United States compels the rest of the world to support American competitiveness. The chaos of recent weeks would then be momentary, giving rise to a new order that favors the productive resurgence of the United States.
The question is whether the United States today has enough strength to change the existing “rules-based order” that it established to create favorable conditions for the global expansion of capital. Undoubtedly, all countries want their companies to maintain advantageous access to the coveted U.S. market. But the countries the U.S. must negotiate with today are not subordinately integrated into U.S. security schemes as Germany and Japan were in the 1980s. Trump must engage with China, a rising power with which the United States is increasingly competing, as well as with an EU that is accelerating plans to pursue military autonomy from the U.S. It remains to be seen how these countries will react, including those of the BRICS (where, curiously, only Russia and North Korea have avoided the burden of tariffs) and other blocs. If they reconfigure their monetary systems to the benefit of the United States, will it be worth it to maintain their access to the U.S. market?
What is certain is that no amount of monetary alchemy will attract the mass production of goods back to the United States. Just as the Plaza Accords temporarily helped balance the United States’ external accounts and regain some market share from its partners — without preventing the economic restructuring that U.S. industries underwent to relocate to low-wage countries — Trump’s tariffs, while effective in extracting substantial monetary concessions, will not bring back the jobs lost due to companies’ relocating abroad to produce at lower costs. As the late Apple CEO Steve Jobs told President Barack Obama in 2011 when asked what it would take for the iPhone to be manufactured on U.S. soil: “Those jobs aren’t coming back.”
Blow for Blow and Economic Uncertainty
It remains to be seen whether the virtuous cycle of striking to negotiate imagined by the Trump administration has any basis in reality. For now, amid global disorder, Trump has introduced more chaos, setting the tone. The liberal press, which urged the EU, China, and other relevant nations not to retaliate and to uphold their commitment to a cohesive global economy, does not seem to have been heeded sufficiently. Following Trump’s tariffs, China announced it would impose a 34 percent tariff on products from the United States.
Stock markets have been in freefall since Wednesday, mirroring many trading sessions since late February, with stock market values plummeting nearly 20 percent since their peaks.
Jerome Powell, the head of the Federal Reserve, appeared on Friday to warn that the tariffs approved by Trump are “greater than expected” and that their economic consequences are likely to be more severe, including increased inflation and a slowdown in growth. “We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation.”
The challenge for the Fed is that, to stimulate economic activity and combat unemployment, it must encourage monetary expansion by lowering interest rates. At the same time, to address the threat of a resurgence of inflation, it should implement a contractionary monetary policy. Following these announcements, forecasts of an economic downturn for this year were reinforced, with some projections estimating a decline of 1 to 2 percent along with inflation that could reach yearly rates of 4 or 5 percent. The Fed’s options for action are narrowing amid the instability caused by Trump.
As Michael Roberts notes, the weight of foreign trade in the U.S. economy today is three times what it was when the Smoot-Hawley Act was enacted in 1929: imports accounted for 15 percent of GDP in 2024, compared to about 6 percent in 1929. Domestic production and sales are much more intertwined with the influx of these imported goods than they were 90 years ago. This contradicts the notion that tariffs will affect economic activity only in countries that sell to the United States. Thus, the GDP impact of the trade war may be significantly higher than previously estimated.
Uncharted Territory
The situation is chaotic. It might be a prelude to the Trump administration’s objective of forcing a negotiation. But even if this is the case, global governance — or rather, misgovernment — has entered uncharted territory, introducing new rules. The ramifications of this change will have a profound impact on relations between world powers.
Neither the tariff war nor the potential imposition of new trade and monetary rules envisioned by some of Trump’s officials could fundamentally alter the ongoing decline of the United States. This has been evident in the measures implemented since Obama’s Pivot to Asia, measures that were reinforced by Trump but that failed to curb the growth of China’s global influence. Contrary to their intentions, as the Economist warned, Trump’s decisions could ultimately make China great again, not the United States.
What is confirmed by Trump’s hatchet job on world trade is the decision of the leading power, which historically played a key role in promoting economic integration, to reshuffle and renegotiate. This deepens the crisis of the current order without clarifying what might emerge as its replacement. The escalating rivalry between the United States and China, alongside the potential for open war, creates a situation that can clearly be framed as systemic chaos, of which Trump has become one of the main architects.This article was first published in Spanish on April 6, 2025, inIdeas de Izquierda.