Han Dieperink: Trump's import tariffs are not without risks
This column was originally written in Dutch. This is an English translation.
By Han Dieperink, written in a personal capacity
On the world stage of international trade, President Donald Trump has opened a new chapter. With a series of import tariffs, he has unleashed an economic storm that is rocking not only the US, but the entire global economy. Under the slogan 'America First', he is charting a course that is supposed to strengthen the US economy, but in reality involves a complex web of economic and geopolitical consequences.
Trump's tariff strategy is unprecedented. A 25% tariff on steel and aluminium worldwide, 20% on Chinese products, 25% on Mexican and Canadian imports, and the threat of a 200% tariff on European alcohol. It is an impressive arsenal of economic weapons. But what really sets this approach apart from previous import tariffs is that Trump is now explicitly using the tariffs as leverage for non-economic purposes - notably border security and immigration restriction. This is virgin territory in international trade policy. Although US law gives the president considerable powers to impose tariffs without Congressional intervention, this shift from targeted financial sanctions to broad import tariffs marks a fundamental change in direction.
The question arises: who actually benefits from these levies? A handful of domestic producers, such as US steel and aluminium companies, see their profit margins rise now that they are protected from foreign competition. But they are a tiny minority. The hard truth is that the vast majority of the US economy - consumers, processors and exporters - are paying the price for these protectionist measures. The first economic shockwaves are already becoming visible. Investment banks have downgraded their growth forecasts for 2025 and raised their inflation forecasts. The S&P 500 is down 10% since its peak in February. Consumer confidence has dropped to its lowest level since November 2022, when the US economy was still struggling with historically high inflation under Biden.
A curious paradox arises here: the same president who was elected because voters thought he would be better at fighting inflation than his Democratic rivals is now pursuing policies that almost every economist believes will lead to higher prices. Trump's strategy seems to rest on a simple but risky assumption: that America's trading partners are so dependent on the US market that they will eventually succumb to his demands. In the case of Canada and Mexico, this approach seems to be working for now. Following the threat of 25% tariffs, Mexico pledged to deploy 10,000 military personnel at its borders to combat drug trafficking. Canada followed with a pledge to deploy personnel for tighter border controls and appoint a 'fentanyl czar'.
Economic dependence is indeed asymmetric. Canadian exports to the US account for about 20% of Canada's GDP, while US exports to Canada account for only 1% of US GDP. For Mexico, with the US as its largest export market, the situation is similar. China, however, shows more resistance. With its huge domestic market and extensive global trade network, China has the capacity to resist US tariffs and take strong countermeasures. It has condemned US tariffs, announced to challenge them at the World Trade Organisation, and dismissed allegations about fentanyl as 'America's problem'. International reactions show that tariffs are a double-edged sword. Canada immediately announced a 25% tariff on US goods worth $ 20 billion. The European Union followed with tariffs on US products worth € 26 billion. Unlike financial sanctions, trade tariffs almost inevitably provoke retaliatory measures that can damage one's economy.
Behind Trump's tariff policy seems to be a fundamental shift in economic thinking. Some economists, such as Michael Pettis, argue that America's capital inflows, traditionally seen as beneficial, are in reality a weakening curse that strengthens the dollar, promotes financialisation and erodes America's industrial base. This view has resonated with key figures on Trump's economic team, including Treasury Secretary Scott Bessent. The trio of Bessent, Stephen Miran and Vice-President J.D. Vance seem intent on reshaping global trade and the financial system, possibly through a 'Mar-a-Lago deal' that would go far beyond previous international financial agreements, perhaps all forced with import tariffs. As Greg Jensen of hedge fund Bridgewater put it, 'We are all mercantilists now.' It is a shift in economic philosophy potentially as profound as John Maynard Keynes' post-World War II reforms or the neoliberal revolution of the 1980s.
In the short term, Trump's strategy seems to be achieving some success, but in the long term he is playing a dangerous game with America's influence and prosperity. By punishing key trading partners, he risks them seeking alternative suppliers and weakening America's long-term economic influence. This undermines America's national security strategy, which depends precisely on close economic relations with allies. The 'optimal tariff' argument that Trump seems to be making ignores the significant risks he is taking. In a trade war, everyone is worse off. Further escalations could disrupt global supply chains, damage the US and global economy and sour political relations.
The 'no pain, no gain' rhetoric of Trump and his economic team finds little resonance with ordinary Americans, who feel the higher prices for everyday products directly in their pockets. Moreover, trade wars often degenerate into prestige issues from which proud leaders find it difficult to escape without losing face. The economic and political consequences of Trump's policies could ultimately undermine the goals he wants to achieve. The coming months will show whether this tariff strategy holds up against economic realities and international backlash. For now, it seems we are witnessing an economic experiment in which the consequences will only become fully clear later. One thing is certain: in a globalised economy, no country is an island, including America. Trade wars rarely have real winners - only varying degrees of loss for the parties involved.