Trump’s Dumb and Dumber Tariffs

The Failure of Hyperglobalization and the Threat to Democracy

BY JOHN MILLER | March/April 2025

This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org

This article is from the
March/April 2025 issue

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Beginning this past February President Donald Trump’s administration issued a barrage of executive orders imposing tariffs, then retracting them, and then imposing yet other tariffs that are equally ill-considered and dangerous. Trump’s tariffs have been roundly condemned by economists and pilloried in the business press.

The Wall Street Journal editors haven’t missed a beat. They called Trump’s across-the-board tariffs of 25% on Canadian and Mexican imports “The Dumbest Trade War in History.” When Trump postponed the 25% tariffs on Canada and Mexico after the Standards and Poor’s 500 index of U.S. stock prices dropped 3% on the morning they were to go into effect, the editors told readers, “Trump Blink[ed] on North American Tariffs.”

When Trump reimposed his 25% tariffs on imports from Mexico and Canada less than a month later, stock prices fell again, this time wiping out all gains in the S&P 500 stock price index since Trump’s election (on November 4, 2024). The editors called it “the Dumbest Tariff Plunge.” Trump then pared down some of those tariffs and paused others. What will ultimately become of the tariffs on imports from Canada and Mexico at this point is still unknown.

Trump’s next attempt, a 25% tariff on steel and aluminum imports, was also met with the editors’ ire. They called the tariffs “political rent seeking at its most brazen,” intended to boost the profits of the U.S steel and aluminum companies. Finally, for the editors, Trump’s proposal to impose reciprocal tariffs on any nation with higher tariffs on U.S. exports than the United States imposes on their exports was tantamount to “outsourcing U.S. tariff policy to other countries.”

The editors are surely right. Trump’s tariffs will damage the U.S. economy and leave most U.S. workers far worse off, not better off as he promised. But none of that makes the non- interventionist, free-market policies the Wall Street Journal editors have peddled for decades a desirable alternative. Those policies ushered in a period of hyperglobalization, defined as the rapid increase in trade relative to the size of the economy, which failed to bring economic relief to those who have been left behind by globalization and instead continued to shower gains on financial elites. But there are progressive, equitable, and democratic policies that would do better by most all of us.

What the Editors Got Right About Trump’s Tariffs

To begin with, along with most every economist, the editors recognize that tariffs are taxes paid by U.S. importers, and that the great bulk of the economic burden of those taxes is passed on to consumers in the form of higher prices. Tariffs on Chinese, Mexican, and Canadian imports will drive up the cost of groceries (especially fruits and vegetables) and electronics (TVs, smart phones, and video consoles), along with toys, beer, lumber, cars and trucks, and natural gas. And those price hikes will do far more to reduce the real income (or purchasing power) of low-income households who consume a much larger percentage of their income than better-off households do. (See “Tariffs, Deportations, and Tax Cuts for the Rich,” D&S, January/February 2025.)

On top of that, Trump’s tariffs during his first term were counterproductive. In March 2018, the Trump administration imposed a 25% tariff on imported steel and a 10% tariff on imported aluminum. In December 2019, the Federal Reserve Board issued a study showing just how ineffective the Trump tariffs had been. In their editorial at the time, “How Tariffs Hurt Manufacturing,” the Journal editors translated the finding of the Fed’s study into plain English. They wrote: “The higher costs from tariffs swamped benefits to specific firms from import protection. The tariffs cost more jobs than they created.”

Trump’s current steel and aluminum tariffs will likely be far more damaging than his 2018 tariffs. To begin with, the tariff on aluminum imports is 25%, not 10%. In addition, unlike the 2018 tariffs, the current tariffs do not exempt Canada, Brazil, Mexico, and the European Union, the biggest suppliers of imported steel to the United States. In addition, U.S. trading partners have already pledged to retaliate. Ursula von der Leyen, European Union Commission president, called the U.S. steel and aluminum tariffs “unjustified,” and promised that “they will trigger firm and proportionate countermeasures,” according to Reuters.

Finally, if Trump follows through with his pledge to impose retaliatory tariffs on all countries that impose higher tariffs on countries that impose tariffs on U.S. exports, the results could be catastrophic. Reciprocal tariffs could trigger an upward spiral in global tariffs similar to that during the Great Depression of the 1930s. The Tax Foundation, a conservative policy center, estimates that with Trump’s proposed tariff hikes, average U.S. tariffs could be “seven times higher in 2025” than a year earlier, reaching 17.7%. That would be the highest average tariff rate since 1934 in the midst of the Great Depression.

The Wall Street Journal reports that “the two-headed monster stagflation,” simultaneous economic stagnation and inflation, “has entered the chat.” And Nobel-Prize winning economist Joseph Stiglitz told the Guardian, the British daily, that Trump’s tariffs and threats risk setting off stagflation.

What the Editors Get Wrong About Free Trade

The free-trade policies favored by the Wall Street Journal editors and traditional trade economists might be more disciplined than Trump’s hodgepodge of tariffs, but they would do no more to improve the lot of those who have been left behind in the U.S. economy than Trump’s tariffs. The most common rendering of traditional economic trade holds that international exchange creates universal gains, benefiting poor nations as well as rich nations. But a more careful and honest presentation of the workings of international trade recognizes that “trade is no different from any other economic change, in creating winners and losers,” as the editors of the Financial Times, the British business daily, put it in a 2020 editorial.

What international trade does in practice is change the mix of jobs in a country, more so than decreasing or increasing the number of jobs. That in turn causes massive dislocation that leaves many behind, especially when they get little or no support from the government. In his book The Globalization Paradox, economist Dani Rodrik finds that the primary effect of eliminating tariffs in the United States would be to reshuffle income among different groups. Rodrik calculates that in the case of the United States, for every $1 of overall gains, $50 of income gets shifted from one group to another. For typical working families, the $1 of overall gains is likely to be swamped by the fact that they are on the losing end of the $50 income shift.

On top of that, much of the gains from trade are diffuse, going to millions of consumers in the form of lower prices for cheap imports, while losses are highly concentrated, materializing in the form of lost jobs and the economic decline of towns and regions.

Beginning in 1980, the U.S. economy and much of the global economy entered a period of trade liberalization, lowering tariffs and other barriers to trade, and hyperglobalization. In the United States, trade (the sum of exports and imports) relative to the size of the economy (measured as Gross Domestic Product—GDP) increased rapidly from 20.1% of GDP in 1980 to 29.9% in 2008, when the growth of trade relative to the economy came to a halt with the onset of the 2008–2009 global financial crisis.

As trade increased relative to the size of the economy, inequality worsened almost in lockstep. In 1980, the share of national income going to the bottom 50%, or the size of their slice of the economic pie, was close to twice as large (193% to be exact) of that going to the richest 1% of households. By 1996, the income shares of the bottom 50% and the top 1% were nearly equal (15.5% and 15.3% of national income, respectively). And by 2008, at the end of the hyperglobalization period, the income shares of the bottom 50% of households was only four-fifths of that of the top 1%. Other factors, such as virulent anti-union policies and increasingly regressive tax codes that dramatically reduced the tax burden of the rich, contributed to rising inequality. Not that these factors are unrelated. For instance, Kimberly Clausing, senior fellow at the Peterson Institute for Economics, has argued that the “real reason” behind Trump’s trade wars is to collect revenues from tariffs, the equivalent of a tax increase that falls most heavily on poor and middle-income families, to pay for a tax cut for the rich. Even after the era of hyperglobalization, inequality continued to worsen, albeit more slowly. By 2022, the income shares of the bottom 50% had fallen to 65.5% of that of the richest 1%. Nonetheless, the tight correlation between hyperglobalization and ever-worsening inequality is indisputable.

The increasing inequality that accompanied hyperglobalization has fueled a populist backlash that threatens not only globalization but democracy as well. Stiglitz, who is a critic of neoliberal globalization, warned in an article he wrote for Project Syndicate in 2023 that in today’s capitalism without accountability, “economic and political inequality have grown so extreme that many are rejecting democracy.” In that same year, Martin Wolf, the chief economic commentator of the Financial Times, published The Crisis of Democratic Capitalism. As Wolf came to see it, “large rises in inequality and the deteriorating prospects of the working and middle class has been breaking the foundations of democracy.” It is just that sort of anti-democratic populist backlash that was key to electing and then re-electing Trump president of the United States.

What Would Be Better?

There are serious alternatives that are neither the self-destructive, haphazard tariff policies of the Trump administration nor the free-trade orthodoxy that ignited a powder keg of worsening inequality beginning in the 1980s.

With increased international trade comes the need for increased government intervention that couples progressive trade policy with progressive domestic policy. To begin with, governments must support people who are displaced by workforce changes due to trade, from employment insurance funds to well-funded retraining programs. As economist Arthur MacEwan has argued (“What Would a Progressive Trade Policy Look Like?,” D&S, July/August 2017), those protections should be extended to all workers when they lose a job, no matter what the reason. And they need to include portable medical insurance, best provided by a “Medicare for All” program, as well as assurances that the children of laid-off workers will have access to cost-free higher education.

A progressive approach would not turn away from trade but would instead have the United States participate in the global economy through rules and policies that are more democratic and serve the interests of people here and across the globe. That means international agreements to combat climate change and to promote global health need to play a central role in regulating international trade, which is now subject to the dictates of the World Trade Organization and its commitment to maintaining the free movement of commodities and capital in the global economy. To that end, the United States should be actively supporting the Paris climate agreement and the World Health Organization—not withdrawing from them. Nor should a progressive policy sweep away all tariffs, another point MacEwan emphasizes. Surely goods whose production or use is environmentally destructive should face trade restrictions. And green tariffs that protect the development of clean energy are justified. Likewise, goods produced under conditions where workers’ basic rights to organize and to work in reasonable health and safety conditions are denied should not be given unfettered access to global markets.

In short, the alternative to Trump’s tariff mania, on the one hand, and to hyperglobalization, on the other, is a more equal and more democratic economy at home and abroad.

JOHN MILLER is a professor of economics at Wheaton College and a member of the Dollars & Sense collective.

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