Policy Brief: What Drives Trump’s Tariff Policy?
President Donald Trump’s tariff policy centers around three core objectives: to reindustrialize the U.S. economy and revive manufacturing, generate federal revenue to offset tax cuts, and use tariffs as leverage in trade and foreign policy negotiations.
Reindustrialize U.S and Revive Manufacturing: Trump views high tariffs as a way to reduce U.S. reliance on foreign manufacturing and to encourage domestic production. Trump believes that free trade agreements and global supply chains have hollowed out U.S. industry and shifted manufacturing jobs overseas. Trade and manufacturing advisor Peter Navarro and Commerce Secretary Howard Lutnick view tariffs as a long-term tool to rebuild U.S. industry. Trump’s broader strategy involves using tariffs to compel foreign central banks to lower their interest rates. This would devalue their currencies against the dollar, effectively making their exports cheaper and offsetting the price hikes from U.S. tariffs. In Trump's view, this tactic would let U.S. consumers avoid paying more, while shifting the burden to foreign governments.
Generate Revenue to Offset Tax Cuts: Trump’s second major stated reason for imposing tariffs is to generate federal revenue. He has often discussed tariff revenue as a way to offset the impact of broad tax cuts on the national debt. Peter Navarro has estimated that universal tariffs could generate up to $600 billion in revenue annually. Many economists, however, argue that tariffs are an unreliable revenue stream. Higher tariffs often lead to higher prices for U.S. consumers and businesses, reducing any economic gain from the tariffs.
Use as Leverage in Trade and Foreign Policy Negotiations: Trump also views tariffs as a powerful tool in international diplomacy. While traditional U.S. trade policy has reserved the use of tariffs primarily for trade-related disputes, Trump has used them to address broader foreign policy issues, including immigration, drug trafficking, and currency manipulation. Director of the National Economic Council Kevin Hassett and Treasury Secretary Scott Bessent seemingly view tariffs more as bargaining tools. Trump’s views on using tariffs as negotiable leverage contradict using tariffs to increase revenue, as the revenue impact of tariffs would be temporary if the tariffs are used as leverage in negotiations.
Risks in Trump’s Strategy
Trump’s trade strategy risks triggering a global trade war. High U.S. tariffs could lead trade partners to impose retaliatory tariffs on the United States. They could also lead to geo-economic shifts in which former trading partners align with U.S. geopolitical rivals.
Trump’s trade strategy also risks damaging the U.S. economy. Tariffs risk consumer price inflation and long-term harm to global supply chains. The Tax Foundation projects that Trump's tariff proposals could shrink U.S. GDP by 0.4% and raise taxes by $1.2 trillion between 2025 and 2034.
Changing the Global Trade System
Overall, Trump’s use of tariffs reflects his desire to remake the post-World War II global economic order of free trade, globalization, and multinational cooperation. In his view, this system has allowed countries like China to exploit global trade rules while the U.S. shoulders the burden. By using tariffs aggressively and unilaterally, Trump aims to upend this system and force a new, more favorable arrangement.