Trump’s tariff policy undermines his own agenda and the foundations of US economic power

The administration’s policy works against its economic priorities and undermines America’s strengths. 

Expert comment Published 26 March 2025 Updated 16 April 2025 4 minute READ

Max Yoeli

Senior Research Fellow, US and the Americas Programme

Since returning to the White House, President Donald Trump has wielded tariffs with unprecedented breadth and aggression. Guided by his conviction that, ‘tariffs are about making America rich again’, he has transformed trade policy into a blunt economic weapon. But his approach is impeding the administration’s stated priorities and undermining US economic dynamism and security.  

With new domestic facilities requiring years to become operational, interim tariffs on imported chips would harm US firms during a critical period.

Economists broadly agree that Trump’s tariffs – taxes on imports paid by US businesses and consumers – will lead to higher prices and slower growth. Sharp consequences are already visible as investors begin to question US economic exceptionalism. Equity markets have dropped in a rapid correction, consumer and business confidence have plummeted, and analysts have cut growth forecasts.

The president promises that trillions in revenue and unprecedented job creation will make ‘a little disturbance’ worthwhile. Yet, tariff policy is undercutting both his stated economic priorities and America’s economic strengths.  

Undermining domestic priorities  

President Trump’s election campaign promised to lower prices and revive manufacturing. Yet his maximalist embrace of tariffs undermines both efforts. Tariffs are contributing to elevated prices, and long-term inflation expectations have spiked to a three-decade high. Major retailers warn of higher prices ahead, which will hit lower-income Americans hardest – a group of voters that swung significantly toward Trump in the 2024 election.  

With trade policy uncertainty soaring to an all-time high, US policy has become a leading source of risk. 

The administration’s global levies on steel and aluminium exemplify how tariffs undermine manufacturing revival. Trump’s similar 2018 tariffs created just 1,000 steel jobs while costing 75,000 jobs in steel-using industries.

The new, more comprehensive tariffs may boost US steel producers, supporting 80,000 jobs. But they threaten a portion of 12 million jobs in industries that use steel and aluminium, portending turbulence rather than renaissance for US manufacturing.  

Hampering competitiveness in strategic industries  

Targeted tariffs could support strategic US industries as part of a nuanced industrial policy. But the Trump administration’s heavy-handed approach instead undermines competitiveness in areas vital for future economic leadership.

Consider artificial intelligence, a strategic priority with massive economic and security implications. While Trump has vowed to make the US ‘the AI superpower’ and celebrated private sector investment, his tariffs hamper these ambitions by increasing data centre construction costs and deepening equipment shortages.  

Proposed tariffs on semiconductors or withdrawal of Biden-era chip subsidies could create a further drag on innovation, despite expanded US investment from a top Taiwanese chipmaker. With new domestic facilities requiring years to become operational, interim tariffs on imported chips would harm US firms during a critical period of global technology competition.  

The pattern extends beyond high-tech industries. Restoring US capacity in shipbuilding, a sector China dominates, is an administration priority. But tariffs on steel, a primary input for the industry, would inhibit the competitiveness the administration hopes to restore.  

Eroding international influence  

Internationally, tariffs are damaging US economic power and security. While some applications –  including against China – were widely expected, their broader use as a tool of first resort is pushing traditional partners away, forcing them to seek alternate arrangements. By doing so, the administration’s aggressive trade tactics risk accelerating what it seeks to avoid: the decline of American economic power and prosperity.  

The US remains the world’s most desirable consumer market. But, comprising only 13 per cent of global imports, it is not irreplaceable. Frustrated by the lack of new market access following domestic political shifts in the US, trading partners had already begun to cultivate alternatives. Aggressive US trade policy is now accelerating matters, pushing trading partners to plan for retaliation, seek exemptions, and strike alternative partnerships.  

Since Trump’s election, the EU struck a deal with MERCOSUR, a South American trade bloc, concluded an agreement with Mexico, advanced negotiations with India, and relaunched negotiations with Malaysia. The UK has joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and restarted talks with India. None of these forays would replace trade with the US. But they do indicate a desire by key US trading partners to diversify trade flows and hedge against unpredictability.  

Beyond bilateral trade, cooperation among trade partners is essential for economic security. The depletion of US credibility and atrophying of trade ties could erode US geo-economic tools and power, creating vulnerabilities.  

This is especially evident regarding Chinese economic practices. There is a real opportunity for the US to align with partners that share its concerns over the scale of Beijing’s state subsidies and overcapacity. But rather than coordinate an international response, US tariffs complicate partners’ calculations, forcing them to navigate between the two behemoths.  

Similar dynamics could threaten the implementation of harder-edged economic tools like export controls and sanctions. Such measures demand international coordination: Dutch and Japanese cooperation, for example, was integral to export controls limiting China’s access to advanced chips. But future partners may be much less inclined to bear the cost of such collaboration for an unreliable and economically aggressive US.  

The erosion of trust extends beyond economics. NATO allies Canada and Portugal are seeking alternatives to the F-35 stealth fighter, nervous of allowing their security to be reliant on a US that leverages its strength and allies’ dependence to force their decisions.  

The administration’s tariff-first approach fundamentally misunderstands the nature of post-war American economic power.

Coercive tariffs have yielded limited tactical concessions: Colombia bowed to pressure to receive militarized deportation flights; Mexico again deployed troops to its border. The administration’s announcement that it will impose tariffs on countries that purchase Venezuelan oil represents a novel escalation of its unilateral approach and shows it is learning the wrong lessons from early trade spats.  

These ‘secondary tariffs’ – which target third-party trade flows without direct US involvement – may drive short-term compliance but will ultimately accelerate efforts to bypass US economic leverage.  

The administration’s tariff-first approach fundamentally misunderstands the nature of post-war American economic power. That power was grounded not in inflicting pain to extract concessions, but in fostering a predictable system in which all participants benefit. 

As this system has aged, its shortcomings and a shifting global economy have rightly driven demands for reform. But chaotically dismantling the structural basis of US and global prosperity, instead of reforming and strengthening it, is a dangerous miscalculation.

Scaling back massive reciprocal tariffs planned for next week may offer some temporary relief to investors and businesses. But it does not change the administration’s fundamental approach or reduce the uncertainty that comes with it. 

The disorderly, maximalist embrace of tariffs against allies, partners, and competitors alike will squander US economic power when it’s needed most to realize Washington’s strategic goals. The greatest risk may be that in pursuing tactical wins with diminishing returns, America undermines the very foundations of its global economic leadership.