Everyone Is Wrong About Tariffs

Stop trying to figure out what the plan is, because there isn't one.

You’re wrong about Donald Trump’s tariffs. I’m wrong about Donald Trump’s tariffs. Donald Trump is wrong about Donald Trump’s tariffs. It’s impossible to be right about Donald Trump’s tariffs because there is nothing to be right about.

President Donald Trump and Secretary of Commerce Howard Lutnick announcing “reciprocal” tariffs on April 2nd, 2025 aka “Liberation Day”

The past few weeks have been interesting to say the least. On April 2nd Donald Trump began what might be the most chaotic period of economic policy in American history if not world history. It seems like every day (and sometimes every hour) there’s a new tariff announced or a new tariff exemption or maybe the tariffs don’t exist at all. Documenting exactly what has happened with American trade policy since “Liberation Day” is enough material to fill a textbook and it doesn’t look like things are calming down any time soon so that’s not what we’re doing here. Instead, I’m going to convince you that there’s no rhyme or reason to any of this and attempting to find one is not just futile—it’s dangerous.

To prove it here’s a list of every theory I’ve seen or heard over the past two weeks and why they’re all wrong.

He Wants To Bring Back Factories

Probably the most popular theory for Donald Trump’s tariff policy is that it’s an attempt to bring back American manufacturing. Steep tariffs will allow local manufacturing to compete with cheap foreign labor and bring back those factory jobs that NAFTA or China or the “globalist elite” stole from us.

Even if I agreed that bringing back manufacturing jobs was an important policy priority, these tariffs are actively counterproductive to that goal. Donald Trump should already know this because of what happened the first time he implemented tariffs.

Economists love the phrase “no such thing as a free lunch” to mean there’s always a trade-off to any decision. Allowing the import of foreign goods lowers the cost of said goods but will decrease domestic manufacturing. This is the trade-off that protectionists seek to reverse with tariff policies; they want to increase the price of foreign goods so that domestic producers can more easily compete. Of course, this comes at the cost of domestic consumers paying higher prices for their goods but for the sake of argument let’s assume we don’t care about consumers at all.

“Access to cheap goods is not the essence of the American dream.” -Scott Bessent, Secretary of the Treasury

So why don’t we slap a big fat tariff on something made in a factory, like steel? American steel producers won’t be undercut by foreign competition and we can bring home thousands of steelmaking jobs, awesome. I’m sure Pittsburgh would be happy to see their NFL team’s namesake industry back in town. What happens if you work in a factory that makes stuff out of steel, like nuts and bolts?

If you own a nuts and bolts factory your operating costs just went up. Whether you’re buying American or foreign steel it’s more expensive either way. That means you need to raise the price of your nuts and bolts to stay profitable. Maybe raising the price means you lose some customers and have to have a round of layoffs, no big deal. But what about those customers? What about the factory that buys nuts and bolts and uses them to make construction equipment? They in turn have to raise their prices or cut costs and so on and so on throughout the whole economy. Therein lies the real cost of tariffs—the problem isn’t higher prices it’s how people react to higher prices.

That’s the Econ 101 theory but how does this work out in practice? Well, we already know exactly how it works out because during his first Presidential term Donald Trump implemented tariffs on foreign steel and aluminum and it reduced manufacturing employment. Oops.

Figure taken from “Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector” by Aaron Flaaen and Justin Pierce at the Federal Reserve

The same story is playing out this time around. Nobody has any idea what tariffs will look like by this time tomorrow (much less next month) so any specific predictions on employment are up in the air but that is only a question of magnitude, not direction. There is no universe in which imposing tariffs on raw materials like steel, lumber, or aluminum will have any sort of positive impact on domestic manufacturing employment. Foreign retaliation only makes things worse, as China recently announced its plans to halt the export of rare earth minerals to the United States. These minerals are crucial components in many of America’s biggest and most important manufacturing sectors like automobiles, aerospace, and electronics.

On April 6th, Commerce Secretary Howard Lutnick appeared on CBS to defend tariff policy. Here is a transcript of that interview and a few choice excerpts:

“We will help the American workers, yes. American workers are more expensive, but they're better.”

“Trillions of dollars of factories are going to be built in America. That's huge GDP.”

“No, it's really automated jobs. It's automated factories- automated factories. But the key is, who's going to build the factories? Who's going to operate the factories? Who's going to make them work? Great American workers. You know, we are going to replace … the armies of millions of people- well, remember, the army of millions and millions of human beings screwing in little- little screws to make iPhones, that kind of thing is going to come to America.”

In this interview Lutnick puts forth several justifications for the tariffs that are often contradicted by himself and other administration policy. He pays lip service to American workers, then says that the new American factories will be automated, then “clarifies” that the American workers will be the ones building the factories. Lutnick even specifically refers to iPhones as an example of production that will be brought back to the United States.

Two weeks later, President Trump exempted iPhones (and other electronics) from tariffs.

The choices Trump is making in terms of which goods to include or exempt from tariffs make no sense from the perspective of someone who wants to re-industrialize. I’m sure by the time I finish writing this sentence things have changed, but as of now the President is considering placing tariffs on electronics manufacturing equipment. Not only is Trump exempting some of the highest value goods that we import from China from the cost of tariffs, but he also wants to place tariffs on the equipment we could use to manufacture said goods. In effect Donald Trump is actively subsidizing Chinese electronics manufacturing.

He Wants To Replace The Income Tax

Donald Trump has hinted before that he wants to use tariff revenue as a supplement or a replacement for the federal income tax. Part of his Liberation Day routine involved floating the creation of an “External Revenue Service” as a foil to the Internal Revenue Service. Ignoring the fact that tariffs are not a source of external revenue (they are paid by American importers at the point of entry) this idea is laughable just on a grade-school math level.

In FY 2024 the IRS colllected $1.14 trillion in individual income taxes and $834 billion in Social Security and Medicare (or FICA) taxes. Half of FICA is paid by the employer and half by the employee so we’ll call it $417 billion (yes, I know that everything is fungible calm down). That’s a total of some 1.5 trillion dollars that Donald Trump needs to replace with tariffs.

Last year The United States imported $3.36 trillion worth of goods according to US Customs. That means at an absolute minimum you need an effective tariff rate of 46.3% to break even and that’s before accounting for decreased demand for imports or foreign retaliation. Trump’s proposed Liberation Day tariffs (before all the exemptions and un-exemptions and re-exemptions) would have been the highest tariff rate in a century and still only combined to around 25% overall. It’s basic math.

Even if we leave the math behind, this idea is in direct conflict with other rhetoric and actions from the administration. If tariffs are supposed to be a significant source of revenue, designed to replace the federal income tax, how is that compatible with re-shoring domestic manufacturing? Every theoretical factory that gets built in the United States means one less offshore factory who’s goods are subject to tariffs. It’s a self-defeating feedback loop.

He Wants To Re-Finance Our Debt

One particularly galaxy-brained idea I’ve seen floating around the internet is that these tariffs are part of an elaborate scheme to re-finance the United States’ national debt at a lower interest rate. Here’s the plan:

1. Implement tariffs

2. ???

3. Interest rates will be lower

There’s no credible explanation I’ve seen or heard for how tariffs are supposed to lead to lower interest rates or how that will allow Trump to pay off any significant amount of the national debt. Before we get to what actually happened in the real world after Liberation Day I want to walk through the economics and try to find the way these puzzle pieces fit together.

First let’s just look at the effects of tariffs in a vacuum. They raise some money but shrink the overall economy and make it harder for Americans to buy foreign goods. When Americans buy foreign goods they have to trade their US dollars for other currencies. This in turn leaves foreigners with bags full of US dollars they can use to either buy American goods or investments, namely Treasury bonds. Higher demand for Treasury bonds leads to lower interest rates, simple supply and demand. Inversely this means that lower demand for Treasury bonds results in higher interest rates. Between a shrinking economy and a decrease in imports I’m not entirely clear on how or why tariffs are supposed to lower interest rates.

One proposed theory is that Trump is hoping to trick or coerce the Federal Reserve into cutting rates directly. Central bank independence remains (for now) as one of the few guardrails constraining the authority of Donald Trump’s presidency and he isn’t happy about it. He has a long history of demanding rate cuts from the Fed which continues to this day. Without the personal authority to order Jerome Powell to cut rates it’s possible he’s trying to nudge monetary policy in the direction he wants. Here’s how it’s supposed to go and how it actually went.

1. Implement tariffs (he did)

2. Stock market crashes (it did)

3. Investors run to bonds (they didn’t)

4. Fed sees signs of economic and financial downturn and cuts rates (we’ll see)

5. Pay off the debt (good luck)

Under normal circumstances the stock and bond markets have somewhat of an inverse relationship. When stocks are looking good investors pull their money out of bonds and put it into equities. When stocks are looking bad investors pull their money out of the market and put it into safer bets like bonds. Proponents of this “debt financing” scheme seem to think that Trump is bluffing on tariffs to purposefully crash the stock market and cause investors to buy bonds thereby lowering interest rates. Additionally, the Fed would see this market dip and worsening economic sentiment as bad omens and would tip their hands towards looser monetary policy. The only problem is that investors didn’t run to bonds, they ran away from America.

Big disclaimer: I am an econ major, not a finance guy. No, they aren’t the same thing. Everything you’re about to read is my amateurish interpretation of charts I have seen and second-hand explanations of things I have read other finance people write.

Everyone knows the stock market crashed after Donald Trump announced his tariffs on Liberation Day. In fact, this April 3rd and 4th were the second and third worst days in S&P 500 history. But something strange was happening in the background. Bond yields started going upwards. To understand why that’s so weird you need to understand that bond yields go up when people are selling and down when people are buying, opposite that of the stock market. April 10th was the sixth worst day in S&P 500 history and yet nobody was buying bonds—they were actually selling them. This is the direct opposite of what this supposed debt re-financing strategy wanted and is also a potentially bad omen for its own sake. Investors wanting to sell both American stocks and American bonds at the same time is not a good sign. To read more about why something as boring as bond markets is scaring people I’d recommend following Joe Weisenthal on Bluesky or his newsletter Odd Lots on Bloomberg.

Besides the fact that it didn’t work, the big problem with “intentionally causing a stock market panic” is that you are intentionally causing a stock market panic. The reason the Liberation Day tariffs spooked investors so badly is because they would almost certainly cause a recession if not complete and total global economic collapse. Raising tariff rates to the highest levels seen since the infamous Great Depression era Smoot-Hawley Act is a bad idea to say the least. Add in the fact that the modern economy relies on foreign imports much more than it did in the past and you’re staring down the barrel of Armageddon.

Recessions are bad for government finances for two main reasons. Firstly, tax revenues drop as the economy shrinks; less people getting paychecks means less taxes to collect. Secondly, government expenses rise during hard times as more people rely on welfare programs like unemployment or Medicaid. Good luck fixing the national debt by threatening, and most likely triggering, a recession.

Observe the correlation between larger deficits (blue line going down) and recessions (gray shaded areas).

And don’t even get me started on the multi-trillion-dollar hole that Republicans in Congress are trying to blow in the federal budget right now (you can read more of my thoughts on that here).

He Wants To Bring Back Masculinity

This one isn’t actually that far off the mark, it’s just that I think Donald Trump’s supporters believe in it way more than he does. A significant aspect to the American obsession with manufacturing jobs is the idea that they’re “real” jobs as opposed to “fake” jobs. This idea isn’t at all unique to the right or Donald Trump; ask anybody on the left what they think about Wall Street or insurance companies and you’ll hear the same stuff. Something that is rather unique to the right is the tendency for the “real vs. fake” binary to sound a lot like the gender binary.

It’s not particularly difficult to see the links between gender politics and populist political economy once you know where to look. For instance, there’s the false perception most people have about what the labor market even looks like. When you hear the phrase “union job” it’s likely that a specific image comes to mind. Probably a man in some kind of hard-hat and a high-vis vest, maybe even a specific industry like auto manufacturing. It might surprise you to know that the typical union worker is a public-school teacher. Americans by large have a very skewed idea of what the “working class” looks like, and that skew tends to lean in the masculine direction. We obsess over car factories despite the fact that there are more car salespeople in America than car makers.

Here’s another fact that might surprise you: the gender wage gap doesn’t exist. For young people in big cities, that is. Among full-time workers under 30 in large metropolitan areas the earnings gap between male and female employees is vanishingly thin. In some cases, the gap actually reverses with females outearning men on average. These may be outlier cases, but they aren’t random cases. New York, Los Angeles, Washington DC are all cities in which females are making 100% or more of what their male colleagues make.

“Young women are out-earning young men in several U.S. cities” by Richard Fry

These cases are part of a larger trend where education has brought young women into near-parity with men. Women now often outperform men in college attendance and graduation with no signs of slowing down. This is, of course, a massive victory for women and society in general and should be celebrated as such. No victory is without its sore losers, however, and there’s a rising feeling of resentment among some young men that sees these gains as a problem. For a meaningful number of right-wing men, these tariffs are a form of spiteful catharsis aimed in the general direction of feminism.

One of my favorite internet microcelebrities Cartoons Hate Her wrote about this before, so go read “DOGE is About Sex” first. Essentially there’s a cohort of men who are upset by the fact that women’s increased economic mobility has resulted in sexual and dating standards for men increasing accordingly. Rather than competing in the new sexual marketplace by improving their own product (aka learning how to cook and toning down the misogyny) these men have decided to sabotage the competition. To them the modern “fake” economy has become synonymous with feminist society and if they can destroy the former it will take the latter down with it. I know this sounds ludicrous and insane but unfortunately it is a very real phenomenon.

This TikTok depicts a group of female employees at an Australian skincare company dancing and singing together. This video, for bizarre reasons, has become a symbolic representation of the “fake and feminized” economy for the online right.

In this worldview tariffs are a kamikaze attack designed to revert the world to an imagined past. Who cares if stock markets implode and GDP contracts, they don’t care about any of those made-up fake numbers anyways. What matters is making sure that real jobs, manly jobs, are front and center once again. Once all the woke email jobs are gone then women will have no choice but to revert to their “natural” place as second-class citizens. Then maybe they’ll finally get laid.

He Wants To Restore National Security

This is a bit of an offshoot of the original “he’s bringing back manufacturing” argument but I think it deserves its own analysis. Rather than clinging to some imaginary manufacturing golden age, these people instead say they’re willing to eat the economic costs of tariffs in service of national security. What frustrates me the most about these arguments is that they’re deployed by otherwise intelligent people attempting to steelman the impossible.

The argument goes like this: the United States and China are likely to go to war at some point and the United States needs to be prepared for the material demands of that war. They agree that America is indeed the richest, wealthiest nation in human history as a result of her highly developed, professionalized economy. Riches and wealth do not win wars, however. Riches and wealth are mere tools one uses to buy the bullets and bombs that can win wars. Those making the national security argument fear that we’ve become too reliant on buying things from China. If our simmering cold war ever becomes a boiling hot war, then we’ll be stuck without a reliable source of the physical goods necessary to fight and win.

To an extent I agree. Wars are not won with green GDP charts or stock market returns, they are won with gunpowder and steel. If the United States wants to be prepared for open conflict with China it needs to ensure that it does not rely too heavily on buying Chinese goods. My only problem is that this argument has literally nothing to do with any of Trump’s tariffs at all.

Donald Trump didn’t impose tariffs on China, he imposed tariffs on the entire world.

Our largest trading partners and closest allies were in the crosshairs long before China was. The first shots of Trump’s trade war were not fired on Liberation Day, they were fired months ago at our northern and southern neighbors of Canada and Mexico. If Donald Trump is preparing for war with China, why is he treating Justin Trudeau or Mark Carney like he treats Xi Jinping?

The absolute last thing that any leader should be doing in preparation for war is alienating and antagonizing allies. American bombs can be made out of Canadian steel just fine, and a year ago they were happy to sell it to us. I also struggle to understand how Mexican tomatoes pose a potential national security risk.

Imposing tariffs on your allies doesn’t just make it harder to buy their stuff, it actively pushes them away from you as allies. Canada is currently reconsidering their purchase of the F-35 as a result of Trump’s trade wars and hostile rhetoric. EU countries have announced significant spending plans to develop their own defense industries, seeking independence from the suddenly unreliable United States. At worst, this hostility can push former friends into the arms of your enemies. One week following Trump announcing a 20% tariff on European imports, the EU announced it had begun negotiations with China on setting minimum prices for imported Chinese electric vehicles.

Not only is Donald Trump sabotaging America’s relationship with her closest allies, he’s directly and specifically sabotaging industries that are critical to national defense. The most likely spark of any open conflict between the United States and China is Taiwan. American interests in Taiwan extend beyond the protection of a sovereign democracy due to one particular company: the Taiwan Semiconductor Manufacturing Company (TSMC). This single company is responsible for a majority of the world’s semiconductor production and is the sole provider for many high-end products that companies like Nvidia or Apple rely on.

Donald Trump subjected Taiwan to 32% tariffs.

The whole entire point of defending Taiwan is to protect American access to TSMC exports. A very big reason we’re considering going to war is specifically for the ability to import their electronics. There is no conceivable explanation for why someone who cares about national security or war with China would ever even think of imposing tariffs on Taiwan. It doesn’t matter that he has now temporarily lowered these tariffs or if he is considering exemptions. The fact that Taiwan even made the list at all is sufficient evidence that Donald Trump is not concerned about safeguarding national security in the face of potential war with China.

You want to know one notable exception from the Liberation Day tariff list? Russia.

He Wants To Negotiate New Trade Deals

This is one that Trump’s White House spun up to explain his hasty retreat from the dramatic tariffs announced on Liberation Day. Despite the fact that we have so far negotiated zero new trade deals since April 2nd, the logic on its own face is just stupid. First of all, you can re-negotiate trade deals without threatening to blow up the entire economy. There’s this pervasive idea that Trump’s doing all this as a “negotiating” tactic. I still don’t know what it is that we’re negotiating for but even if I had an answer, that’s still begging the question. Amputation might be a valid medical procedure in theory, but not if you’re seeking to treat poison ivy.

I’m a big fan of a YouTube comedy group that goes by the name Almost Friday. One of their bits is a parody channel satirizing hustle culture influencers named Entrapranure. The central figure of these skits is a character named Royce DuPont who has a signature negotiation strategy.

What I find so funny about the “negotiation” argument is that Donald Trump is unironically applying the famous DuPont Technique to global trade. Apparently, we’re all supposed to think it’s totally reasonable for the President to threaten the world with self-imposed economic suicide as long as it’s in service of some unspecified “deal” he’s trying to make.

Furthermore, nobody can really articulate what it is that Trump’s even negotiating for. The stated goal by many White House officials is supposedly to get other countries to lower their tariffs on American goods. The April 2nd tariffs were even referred to as “reciprocal” despite being anything but. Many of the countries on the list already have free trade with the United States. Canada and Mexico, two of Trump’s biggest trade war targets, are already co-members in the USMCA agreement. For those of you who don’t know the USMCA is a tri-lateral trade agreement that was negotiated and signed by Donald Trump in 2018.

He literally wrote the trade deal that he now says is “raping” the United States.

White House officials claim that right now Donald Trump is focused on negotiating new trade deals with major economies. In particular they say that the grand plan is to bring Asian economies on board with the United States to mutually co-ordinate against China. Pardon my French but this is fucking stupid.

First of all, why would you precede these negotiations by threatening all of the people you want on your side with massive tariffs. You just hit Vietnam with a 46% tariff and then want them to be on your side in a trade war with China? What the fuck are you talking about? Second of all, this whole plan of working with Asian countries to form a trade bloc powerful enough to leverage against China isn’t a new idea. It was called the Trans-Pacific Partnership. I say “was” in the past tense because Donald Trump withdrew in the first week of his first Presidency. This isn’t just reinventing the wheel, it’s reinventing a square wheel after you purposefully broke the first one.

There Surely Must Be Some Strategy, Right?

No, there isn’t, and you should stop looking for one. It’s natural for the human mind to try and find rational explanations for things. When things defy explanation we desperately try and invent one, some kind of theory or narrative that could explain what’s going on. It’s hard to admit that sometimes shit just happens.

I empathize with those of you desperately seeking some kind of 4D chess, some kind of conspiracy, any kind of explanation for why Trump is pursuing this bizarre trade policy. I’m sorry to tell you but it simply doesn’t exist. There is no coherent framework that can explain what the White House is doing right now. Donald Trump doesn’t know what he’s doing, his mind can be swayed by whoever spoke to him most recently. Recent reporting shows that Trump likely implemented the temporary tariff relief because Secretary Bessent and Lutnick snuck into the Oval Office while Peter Navarro wasn’t looking.

“That morning, when Navarro was scheduled to meet with economic adviser Kevin Hassett in a different part of the White House, Bessent and Lutnick made their move, according to multiple people familiar with the intervention.

They rushed to the Oval Office to see Trump and propose a pause on some of the tariffs—without Navarro there to argue or push back. They knew they had a tight window. The meeting with Bessent and Lutnick wasn’t on Trump’s schedule.

The two men convinced Trump of the strategy to pause some of the tariffs and to announce it immediately to calm the markets. They stayed until Trump tapped out a Truth Social post, which surprised Navarro, according to one of the people familiar with the episode.” -Alexander Saeedy, Wall Street Journal

I think a friend of mine put it best: “When Bessent or Navarro or whoever says ‘Trump is trying to do this or that’ what they really mean is ‘Please Mr. Trump do this’”

Recent reporting from within the trade negotiations tells the same story. Charles Gasparino from Fox Business reports that Japanese officials are frustrated with the White House for constantly changing their mind, moving their goalposts, and overall inconsistency in their messaging.

It’s a total clown show and there’s nobody at the wheel. The sooner you accept that truth into your heart, the better. More importantly, you should stop looking for an explanation because that helps legitimize these idiots. Every half-baked incorrect theory that floats around the internet is a theory that people might believe. The mere act of speculation makes people think that there’s some kind of strategy here, even if it’s a flawed one. The truth is worse. They are not making mistakes, that would imply there was an intended outcome. The largest economy in human history has nobody at the wheel. Time to sit back and enjoy the ride for however long we’ve got left.