The trouble with Trump’s tariffs

In April, US President Donald Trump announced, on what he dubbed “Liberation Day”, a regime of tariffs on every country in the world, based on a sketchy formula that assigned higher tariffs to countries with which the US has trade deficits.

Stock markets went into free fall, there was a huge sell-off of US bonds, and Wall Street and other business titans spoke out against the tariffs. Trump pulled back, said he would make multiple deals over the next 90 days, and the stock market returned to setting records. Wall Street coined a term for Trump’s move: “TACO” for “Trump Always Chickens Out”.

In early August, with very few deals negotiated, the administration instituted broad-based tariffs. But unlike in April, the market took it in stride, even though they amount to the highest tariffs in a century: a 15-20 percent levy on all imports to the US. Trump carved out some countries for higher tariffs: Brazil at 50 percent, due to its prosecution of former President Jair Bolsonaro for trying to lead a coup after he lost the 2023 election. Trump set tariffs on India at 50 percent, reputedly to punish it for importing Russian oil, but possibly also for refusing to support his delusional bid for a Nobel Peace Prize.

Then, on 29 August, the US Court of Appeals for the Federal Circuit upheld an earlier decision declaring most of these tariffs illegal. Their fate will now be in the hands of the US Supreme Court.

A tariff is a tax on imports paid to the US government. US importers pay it. In fact, many of them are unable to claim their products until they pay the tariff. Ultimately, the cost falls on consumers who pay higher prices on imported goods such as coffee, or who pay higher prices on products containing imported inputs. Think, for example, of cars or household appliances whose prices increase because tariffs have increased the prices of imported steel and aluminium. Prices may not have spiked much yet, but if the tariffs remain in place, we will likely see prices increase by the end of the year.

The Yale Budget Project estimates that tariffs will add about US$2,800 to the average household’s costs over the next year. And some estimates suggest they could add $4,000-$5,000 to the cost of a new car. So much for Trump’s promise to lower prices on day one!

Government statistics are starting to show a pick-up in inflation on particular goods and sectors that rely on imports. There are three main reasons why most people have not yet experienced big tariff-fuelled price increases. First, many companies, anticipating that Trump would impose tariffs, “front ran”—meaning that they built up their inventories before the tariffs went into effect. It’s likely that the decline in the first quarter gross domestic product, which most economic analysts attributed to an abnormal increase in imports, reflected front-running behaviour.

Second, companies are eating the costs, eroding their profits, rather than passing them on to consumers. It’s possible that some companies were relying on the courts tossing out the tariffs, or a mercurial Trump deciding to lower them. Both GM and Ford reported losses in the billions that they attributed to tariffs. They have yet to raise prices across the board.

Finally, other countries have yet to retaliate with tariffs of their own.

But these strategies merely postpone the tariff shock to the future. Unless companies want to accept lower profits, or lay-offs or bankruptcy, they will be forced to raise prices.

Much of the neoliberal commentariat treats Trump’s tariffs as an absurdity, akin to RFK Jr’s anti-vax demolition of science or the crackpot beliefs of flat earthers. But the left Keynesian economist Yanis Varofakis, the former finance minister in the Syriza government in Greece, says we must take Trump’s tariffs seriously. Trump has been ideologically committed to tariffs and an autarchic or nationalist view of the US’s role in the world economy for decades. In recent decades, economic nationalism has been rising across the entire US ruling class, as administrations of both major capitalist parties seek to compete with China and to prod the European Union to increase its military spending.

Besides the fact that Trump seems to believe that tariffs will ignite a US “golden age”, he also views them as a way to wield his clout, both domestically and in foreign affairs. He has arguably been more successful on the domestic front, as his on-again, off-again threats to levy tariffs on certain industries lead those industry CEOs to make concessions or donations to Trump. The opportunities for corruption are endless.

On foreign policy, Trump has reset the US’s average tariffs on imports to somewhere between five and six times what they were in 2024, without yet experiencing widespread blowback from US trading partners. He and other tariff “hawks” in the administration calculate that other countries have more to lose from being locked out of the US than the US has to lose in trade with them.

Canadian Prime Minister Mark Carney, elected in an anti-Trump “Canada strong” campaign earlier this year, recently lifted retaliatory tariffs against the US, the destination of 75 percent of Canada’s exports. Canada is now attempting to negotiate a deal that will limit US tariffs on certain targeted Canadian exports, such as lumber, steel and aluminium.

On the other hand, Trump’s impetuous decision to place a 50 percent tariff on imports from India threatens to undermine the decades-long US cultivation of India as a counterweight to China in Asia. The symbolism of leaders of India, China and Russia meeting together in Beijing wasn’t lost on mainstream foreign policy hands.

Varoufakis thinks that tariffs may slow the US economy, but the US is still sucking in massive amounts of capital from the world. If that continues, Trump may get away with the tariffs, even if they don’t produce the things he promised: reshoring American industries or replacing income taxes, among some of the more far fetched. But if Trump succeeds in cutting the US trade deficit, other countries will have fewer dollars to reinvest in the US stock market and in other assets.

To Marxists, tariffs are neither good nor bad. They are no better nor worse than “free trade.” They are just one mechanism capitalist states use to gain an advantage over other capitalist states in the international economy.

“Free trade” is most often the policy of the global economic and military hegemon. Britain in the nineteenth century pushed for “free trade” as a way of expanding markets for its industrial economy. Similarly, since the 1930s, it has been a policy of the US government to expand free trade.

The breakdown of free trade today is part of the breakdown of the unipolar US empire that existed in the decades following the Cold War and the collapse of the USSR-dominated Eastern bloc. Now that China is in a close competition with the US, the US government and its business leaders have embraced more protectionist measures against it. Here is where the politics of tariffs enters the discussion.

For now, if most people associate tariffs with higher prices, they are among the most unpopular parts of Trump’s already very unpopular agenda. But one place where they are not condemned—outside of MAGA world and a few favoured industries—is in the US labour movement.

Unfortunately, leaders like United Auto Workers President Shawn Fain, Teamsters President Sean O’Brien and the United Steelworkers of America have embraced the Trump tariffs. This isn’t anything new. “Buy American” has been part of the labour movement for decades. But for labour to buy into Trump’s tariffs now, when Trump and his administration are waging an existential war against labour, is letting MAGA off the hook.

Industrial union leaders support tariffs to prop up US industries where their dwindling ranks work. But support for tariffs targets the wrong enemy. The socialist labour scholar Kim Moody has shown that declining jobs, unionisation and living standards in the US owe more to automation and speed-up than to trade.

Socialist labour activist Andy Sernatinger’s critique of the UAW’s position, titled “Nationalism, workers’ power, and the myth of auto tariffs”, showed that there are as many autoworkers today in the US as there were in 1992 (before the North American Free Trade Agreement, NAFTA). But far fewer of them are in unionised jobs. That’s because the unions have conceded control of the shop floor and have only weakly competed for non-union workers in plants in the southern states, where much of the job growth in recent decades has occurred.

For labour to sign on with policies that are shot through with nationalism and anti-Chinese racism is extremely dangerous. Labour activists should remember the 1980s case of Vincent Chin, a Chinese American man who was beaten to death with a baseball bat by an auto industry supervisor. Chin’s killing took place at a time when the UAW was leading an anti-Japanese car campaign that featured media events in which union members smashed up Japanese-made cars with bats and hammers. Chin’s killer shouted racial slurs at him while he beat him.

Not only does this sort of politics sow divisions among workers, but it also contributes to the general racist and nationalist climate that the Trump administration is leading from the top. It lays the foundation for political support for further economic, political and military confrontation with China.

Even if tariffs don’t have the catastrophic effects—like COVID-era empty store shelves and price gouging—that many predicted, they will still contribute to a slowing economy, higher prices and potentially mass lay-offs. The jobs economy is already weak—the number of job openings is around the level it was during the COVID recession.

It’s not clear that Trump’s tariffs are the cause of all these problems. There is solid evidence that consumer spending was tapped out at the end of last year, before “Liberation Day”. But tariffs are not going to improve the situation. And in the current context, Trump’s tariffs are just another attack on the working class.

First published at the International Socialism Project. Lance Selfa is the author of The Democrats: A Critical History (Haymarket, 2012) and editor of U.S. Politics in an Age of Uncertainty: Essays on a New Reality (Haymarket, 2017). He lives in Chicago.