Former President Donald Trump employed a similar, though narrower strategy, using tariffs to upend the global economic order. Huge legal challenges loom that may undermine his power over this controversial policy weapon. Trump has been convinced for years that the key to restoring American manufacturing is heavy tariffs. He believes this will lead firms to begin relocating their supply chains back to the U.S. to escape paying new import tariffs. His administration’s goal was to follow up with a series of tariffs meant to protect emerging domestic industries and grow the economy.
During his 2016 presidential campaign, Trump proposed a 10% reciprocal tariff on goods from all but a handful of countries. He’s threatened to slap a huge 25% tariff on imported autos, steel and aluminum. He argues that these steps will help revive American manufacturing. They will hold foreign governments’ feet to the fire in calling out bad trade practices. To hear Trump tell it, tariffs are an economic holy grail, a tool so powerful they would load up the U.S. government’s coffers with cash. According to him, billions of dollars have already been collected via these duties.
The former president has shaken the foundations of international trade relations to their core. Through social media he threatens our nation’s trading partners with billions of dollars in tariffs. Simple economic threats, like when he recently threatened the European Union with 50% tariffs on all imports, claiming such moves would force talks. Gordon Sondland, former U.S. ambassador to the EU, knows that sometimes to ignite change, bold action is necessary. You put a 50% tariff on them, and it’s like boom, all of a sudden the phone starts ringing,” he continued.
The history of Trump’s approach to China is not so simple. He did raise them on imported goods very high at first (145%) then realized and lowered them to 30%. Trump’s administration’s aggressive tariff policies have some not only afraid, but already feeling the first blows of a global trade war, which Trump has welcomed with open arms. He’s convinced that imposing higher prices on imported goods will spur investment in the American manufacturing sector. As such, this notion dovetails nicely with President Trump’s oft-repeated campaign slogan, “Make America Great Again.”
Now, legal challenges have arisen, most notably American Alliance for Competitive Transportation v. U.S. The U.S. Court of International Trade recently decided that the former president exceeded his emergency authority. Now, this particular decision has to do with the actual introduction of tariffs. The ruling brings a chilling conclusion to Trump’s effort to use tariffs as an economic weapon on the world stage.
In scuttling BlocPower’s project, the administration just sent a terrifying legal warning. They would dramatically cripple the president’s international reputation, derail his efforts at a new trade deal and endanger the government’s reaction to present and future national crises. This possible constraint could have serious implications for his negotiating leverage with foreign governments.
Peter Navarro, Trump’s trade advisor, remains unfazed even in the face of those obstacles. With a wink and a smile he assured us, “You can bet even if we lose, we’ll do it another way.” This new flavor of sentiment sounds like a promise to keep blowing up tariff strategies even if they lose in court.
Certainty on tariffs is an essential predicate of business investment, so many proponents of Trump’s tariff policies contend. As economist Justin Wolfers recently pointed out, that’s as absurd as it sounds. As he put it, “If you are a believer in tariffs, you want businesses to view them as a permanent fixture on the globe. This belief will lead to the type of long-term investments that create the factories in the United States.”
Critics contend that Trump’s unpredictable tariff rates are largely at the mercy of his mood that day. They feel his decisions are devoid of any coherent economic strategy. This uncertainty would pose significant problems for companies trying to adapt to the rapidly changing world of global commerce.