Trump’s misguided and deluded tariff crusade

Donald Trump’s economic advisors are looking to tariffs as a magic bullet for America’s ailments, a simultaneous bid to bring back manufacturing, defend the dollar’s status as the world’s reserve currency and contain runaway public debt.

But this strategy is a house of cards, founded on mutually incompatible goals that defy economic logic. Reciprocal tariffs, including a whopping 145% on China, may generate revenue for government coffers but risk long-term stagnation and fractured alliances while failing to address America’s structural economic imbalances.

For trading partners like the EU and India, the tariff policy not only threatens export markets but also poses a significant risk to global economic integration, signaling a retreat into 1930s-like protectionism that could unravel decades of economic progress and poverty alleviation worldwide.

1.) Reviving manufacturing

Trump’s team aims to restore America’s industrial might, blaming China’s currency manipulation, technology theft and cheap exports for hollowing out American manufacturing.

They claim offshoring obliterated 50 million American jobs, a figure inflated by automation’s simultaneous toll. But digital photography displaced analog jobs, e-readers upended printing and robotics redefined previously human-run assembly lines—trends Trump’s advisors scarcely acknowledge.

In 2024, manufacturing contributed 11% to the US GDP, down from 20% in the 1980s, reflecting not just foreign competition but technological evolution, the US failure to reskill its workforce and changing global supply chains.

Tariffs aim to lure factories back, promising to make America “great again” by shielding domestic producers from imports.

2.) Preserving dollar supremacy

The policy also prioritizes the dollar’s role as the world’s reserve currency. China and Russia, through BRICS+, are probing alternatives, prompting Trump to wield tariffs as a deterrent.

In his January 2025 inaugural address, Trump vowed 100% tariffs on nations pursuing de-dollarization, a threat that has now materialized with 145% tariffs on China and various other levels for others within 90 days.

These measures aim to bully trading partners into maintaining dollar-centric trade, preserving the US’s ability to borrow cheaply. With $120 billion in US trade and $437 billion in total global exports (2024), India faces acute risks, as tariffs could choke its access to American markets, squeezing its export-driven growth.

3.) Managing debt and funding tax cuts

Finally, Trump’s team plans to tackle America’s $36.21 trillion public debt—forecast to hit $50 trillion by 2035—while bankrolling tax cuts for the wealthy and those earning under $150,000.

Tariff revenue, projected at $300 billion annually, is expected to offset these costs and bolster US Treasury bonds’ allure by keeping the dollar strong. This trifecta—industrial revival, dollar dominance and debt management—sounds bold but crumbles under scrutiny, as each goal undermines the others in a tangle of economic contradictions.

Economic contradictions

Pursuing a strong dollar and manufacturing resurgence is a study of mutual exclusion. A strong dollar inflates the cost of US goods, pricing them out of export markets. In 2023, US goods exports totalled $2 trillion, trailing China’s $3.4 trillion, a gap widened by America’s high wages and currency strength.

Reviving manufacturing demands a weaker dollar, as demonstrated by the 1985 Plaza Accord, which devalued the dollar by 50% against the Japanese yen, boosting US exports by 20% within three years.

Yet, devaluing the dollar today would erode its reserve currency status as global central banks holding an estimated $7 trillion in dollar reserves might pivot to euros or yuan or yen, thus slashing demand for US Treasury bonds.

Foreign investment in US Treasuries and the trade balance are equally at odds. Countries like China, Japan and South Korea, combined holding trillions of dollars worth of US bonds, invest because trade surpluses—$400 billion for China in 2023—generate dollar reserves.

High tariffs curb these surpluses by throttling exports to the US, thus reducing dollars available for bond purchases. The US trade deficit, $918 billion in 2024, is fueled by domestic consumption, not just foreign trade tactics.

Tariffs risk sparking US inflation—projected at 3% in 2025—prompting Federal Reserve rate hikes that could derail economic growth and tilt a now wobbly economy into recession. In 2024, the Fed signaled rate cuts, but a weaker dollar or lower yields would deter bond investors, further complicating debt management.

The interplay between dollar strength, Fed rates and bond attractiveness adds another layer of incoherence to the chart. A strong dollar sustains demand for bonds, but rate reductions reduce yields, scaring off foreign investors.

If inflation rises, prompting rate increases, borrowing becomes more expensive, tightening fiscal space for tax cuts. These contradictions expose the policy’s fragility: tariffs aimed at one objective—say, reviving manufacturing—risk sabotaging others like debt financing. The policy thus risks a self-defeating spiral, undermining the very objectives it seeks to achieve.

Structural flaws, not foreign villains

Trump’s team casts the trade deficit as a plot by foreigners—China, the EU, Mexico and Canada—to cheat the US, but America’s structural profligacy is the real culprit. The US spends beyond its means, running a $2 trillion fiscal deficit of 6% of GDP in 2024.

This “spend-now, pay-later” mentality, enabled by the dollar’s reserve status, drives the current account deficit, including the trade gap. American households save just 3% of GDP, compared to China’s 25%, while government deficits, swollen by tax cuts and subsidies, amplify the imbalance.

Both the Republican and Democratic parties share the blame, pandering to wealthy lobbies with policies that shun revenue hikes. On April 10, 2025, the House of Representatives approved a Senate-amended budget resolution allowing $5.3 trillion in tax cuts, $521 billion in defense and immigration spending increases, at least $4 billion in spending cuts and a debt limit hike of up to $5 trillion.

The dollar’s privilege lets the US borrow cheaply, with foreign central banks holding $7 trillion in reserves. Yet this masks the root issue of chronic US overspending. Even at $300 billion annually, tariffs are a drop in the bucket against a $2 trillion deficit, incapable of funding tax cuts or debt reduction without reforms to entitlements like Social Security or Medicare.

Trump dodges Washington’s fiscal recklessness by vilifying trade partners, risking trade wars that could cost its allies like India, Vietnam, the EU and Canada billions in exports and destabilize global markets.

Historical missteps underscore the folly. The Smoot-Hawley Tariff Act of 1930, raising tariffs at less than 60% (except sugar at 77.21% and tobacco at 64.78%), deepened the Great Depression by choking global trade.

Trump’s tariffs, while less sweeping, echo this protectionist impulse while ignoring the interconnectedness of modern economies. The trade deficit is not a scorecard of foreign deceit but a mirror of domestic choices—low savings, high consumption and deficit spending—that no tariff can fix.

A misguided crusade

Trump’s tariff strategy is a quixotic bid for economic glory that courts failure. A strong dollar smothers manufacturing while devaluation jeopardizes its reserve status and bond demand.

Tariffs may raise revenue but inflate prices, hurting consumers and allies like the EU, Japan and India, whose export markets face disruption. The trade deficit reflects America’s fiscal incontinence, not foreign malice, and cannot be resolved by punitive duties alone.

The path forward lies in reining in Washington, not waging trade wars. Tackling overspending—through spending cuts and tax reforms that make the wealthy and middle class pay a fair share of taxes—is essential for sustainable growth.

Raising household savings, streamlining entitlements and addressing lobbying’s grip on fiscal policy would curb deficits more effectively than tariffs. Globally, the US must rebuild trust with trading partners rather than alienate them with protectionist bluster.

Without these hard choices, Trump’s vision of American greatness will remain a delusion, leaving the economy weaker, the dollar declining and the world wary of US leadership.

Bhim Bhurtel is on X at @BhimBhurtel