Trump’s Tariffs: The Road to Ruin?
Over 90 years ago, Franklin D Roosevelt identified exorbitant tariffs as one of the key culprits of the Great Depression. These tariffs led to global retaliation, stifled investment, and placed America on what he called the “road to ruin.” It took decades of international collaboration—led by America—to reduce tariffs and unlock the potential of global commerce. Fast forward to today, if Donald Trump’s agenda comes to fruition, America risks repeating past mistakes.
Trump’s Protectionist Vision
The extent of Trump’s tariff ambitions in his second term remains uncertain. While investors and diplomats breathed a sigh of relief when he refrained from imposing universal tariffs on his first day back in office, his commitment to protectionism is unwavering. Trump has openly declared tariffs to be “the most beautiful word in the dictionary,” viewing them as a multi-purpose tool to reduce the trade deficit, revive manufacturing, and boost government revenue. Unfortunately, history and economic evidence suggest he is wrong.
Tariffs and the Trade Deficit: A Flawed Approach
Trump’s first-term tariff policies revealed their ineffectiveness in reducing America’s trade deficit. Tariffs often strengthen the dollar by reducing American demand for foreign goods and, consequently, foreign currencies. A stronger dollar dampens global demand for American exports, offsetting any reduction in imports. The net effect? Americans buy less from abroad but also sell less.
To genuinely address the trade deficit, America would need to undergo significant economic changes, such as increasing its savings rate or reducing investment. However, such shifts are neither desirable nor realistic. High investment, for example, is critical for maintaining America’s competitive edge in emerging technologies like artificial intelligence. Obsessing over the trade balance distracts from the economy’s true strengths. Case in point: Germany and China, despite their trade surpluses, are grappling with stagnant growth.
Manufacturing Jobs: A Hollow Promise
Tariffs also do not inherently lead to a manufacturing renaissance. During Trump’s first term, manufacturing’s share of American employment continued to decline despite new tariffs. While some industries—notably steel and aluminium—saw revenue increases, these gains came at the expense of downstream businesses burdened by higher input costs. Protecting struggling sectors at the cost of competitive ones is hardly a recipe for economic revitalisation.
Tariffs as a Revenue Source: A Misguided Dream
In Trump’s most audacious visions, he has proposed replacing income tax with tariffs, dubbing this the domain of the “External Revenue Service.” While the concept might sound appealing, the reality is far less so. Data from his first term showed that tariffs primarily increased prices for American consumers. Even a 10% universal tariff would barely fund a twentieth of the federal budget, assuming import levels stayed constant (which they wouldn’t). Higher tariffs lead to fewer imports, further undermining revenue potential. Tariffs cannot simultaneously create jobs and generate substantial government income—a fundamental contradiction in Trump’s logic.
The Risks of Overusing Tariffs
Trump’s fixation on tariffs as a negotiating tool poses additional risks. While America’s status as the world’s largest market gives it leverage, overusing tariffs diminishes their effectiveness. Once imposed, they are politically and economically challenging to retract. Over reliance on tariffs could entangle America in endless trade disputes, from TikTok sales to fentanyl exports and beyond. This strategy risks creating more problems than it solves.
Misreading History’s Lessons
Trump and his supporters often romanticise the late 19th century as a golden era when high tariffs coincided with strong economic growth. However, scholars have shown that tariffs during this period shielded inefficient companies, raised living costs, and stifled innovation. America’s growth was driven by other factors, such as a booming population, stronger legal institutions, and the success of non-traded sectors.
Avoiding a Return to the “Road to Ruin”
The lessons of history are clear: protectionism and high tariffs lead to economic stagnation, not prosperity. Trump’s misinterpretation of economics and history risks steering America—and the world—toward a dead end. In 2025, as global challenges demand collaboration and innovation, America must resist the lure of outdated and ineffective economic policies. Instead, it should build on its strengths, fostering trade and investment to secure a prosperous future for all.