Trump is betting the economy on his tariff theory
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President Trump has billed Wednesday as a pivotal moment in his administration. We have Liberation Day, as you know, on April 2nd. This is the day we will find out what is included in his latest package of tariffs, which he has called the big one. I call it a lot of different names, but it's really, in a sense, it's a rebirth of a country. The White House says the tariffs will take effect immediately. These would be on top of the tariffs that President Trump has already announced, which

If you have lost track by now, include a 25% tariff on imported cars and across the board, 20% tariff on products coming from China.

And up to 25 percent tariffs on some goods from Canada and Mexico. Trump loves these tariffs, but many economists do not. Like Mark Zandi, who told NPR on Tuesday that the U.S. is in a trade war. We're raising tariffs on our trading partners. They're responding with tariffs on our products. We're lobbying China.

nasty rhetoric at them. They're doing the same to us. Zandi says the risk of a recession is uncomfortably high. The economic damage so far has been modest, but with each passing day that the war continues, the damage is starting to mount. The Trump administration has acknowledged that there may be some negative short-term impact. They call it a detox period or a disturbance. But Trump says tariffs will ultimately reshape the economy for the better.

Or as he put it in his joint address to Congress. Tariffs are about making America rich again and making America great again. And it's happening and it will happen rather quickly. Consider this. Trump is betting big on his tariffs plan. He's staking the U.S. economy on it. From NPR, I'm Elsa Chang.

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It's Consider This from NPR. To hear President Trump tell it, tariffs are perhaps the political equivalent of duct tape. You can use them to fix almost anything. For example, they're a negotiating tool. He used the threat of tariffs to pressure Canada and Mexico to implement border policies that he liked. Tariffs are also a revenue source to Trump that might help offset his proposed $4.5 trillion in tax cuts.

And in Trump's view, tariffs can be a shield to protect American manufacturing jobs from overseas competition.

The thing is, tariffs can't actually be all of those things at once. And so with Wednesday's planned announcement of even more tariffs, we wanted to try to answer a seemingly simple question. What is President Trump's goal with tariffs? For that, I'm joined by Rana Faroohar. She's a columnist for the Financial Times and joins us now. Welcome. Oh, thank you for having me.

So a lot of people who've been critical of Trump's tariffs have pointed out these different stated purposes seem at odds with each other. Like to raise revenue, you have to apply the tariffs long term, right? So then they're no longer a bargaining chip. And if tariffs are successful in getting companies to stop importing and they boost manufacturing in the U.S., well, then you're losing tariff.

revenue, right? So how does the Trump administration explain all these contradictions? Do they explain them? Well, they haven't explained them well. And I think that that's one of the reasons that markets have actually been very jittery in the last few days and weeks. And just to step way back, I mean, this is an experiment that really hasn't been tried

in 40, 50 years. So what we're talking about is a big change to the way the American economy and the global economy potentially works. There are a lot of reasons for it. I want to even caveat a little bit further before I get into those and say, you always have to count his psychology as part of the equation here. Yeah, let's talk about that. Because Trump often talks about his belief that the US has been ripped off by other countries through their tariffs.

Is that true? It's hard to say ripped off when you look at how successful the U.S. is and rich compared to really any other country.

That said, you could look at the tariff numbers themselves. Average U.S. tariffs on the rest of the world are around 2%. Europe, EU would be about 5%. China would be about 10%. So you could look at those numbers and say, hmm, something's not fair here. Maybe we need to rejigger things. Well, Trump describes trade deficits as subsidies that we are paying to other countries. Would you characterize it that way, subsidies? Yeah.

I wouldn't look at it as subsidies, and I don't get quite as worked up about the actual trade balance as Trump and some of his advisors do. But what I would say is that we have kept tariffs very, very low and allowed a lot of countries access to the U.S. market.

with the idea that the way you make an economy work is by driving up stock prices and lowering consumer prices. And having a very, very open market has allowed that to happen. But there have also been ways in which domestic industries, critical minerals, semiconductors, electric vehicles, when you don't support

those industries, they can go abroad. And then in times of crisis, you may regret that. Well, economists who studied Trump's tariffs during his first term in office found that the cost of tariffs was almost entirely absorbed by American consumers through higher prices. So is there a way, can Trump balance trade deficits without raising prices for American consumers?

Probably not this time around. I would actually caveat what you just said, though, and it wasn't just consumers that absorbed the prices, which actually, to be fair, the tariffs in 2018, 2019 didn't cause appreciable inflation because China actually adjusted its own currency to eat some of those costs. That's exactly what the Trump administration is saying is going to happen this time. But that I don't believe.

Because now you're looking at not just one country in one area, you're looking if the proposals go through at all countries in many different areas. And I think that that's going to be an entirely different scenario. And you might see, you know, reciprocal tariffs, potentially the beginning of a trade war that that's real. That's a real worry.

Trump did tell NBC over the weekend that he, quote, couldn't care less if automakers raise their prices. So if cost to consumers aren't his metric for success, then what do you think is his metric for success here? Exactly.

So I think that there are a number of economic nationalists within the administration that see tariffs as a way to reindustrialize, as a way to bolster critical areas, not just the economy, but for security. Ships would be one good example. I mean, China's got about 5,500 seagoing vessels. America has a little over 180. That's a problem if you're in a war.

But you have to do things at home and abroad if you want to actually support industries for economic or political or security reasons. And I don't see the home piece of this yet. I just see the tariff piece of it.

Well, let's go back to Trump's psychology. He has acknowledged that Americans' frustration with inflation helped him get elected. The stock markets are already reacting negatively to tariffs. So if we start seeing public opinion perhaps turn strongly against tariffs down the road, do you think that could be enough for President Trump to change markets?

Of course. I think he, of course he cares what people think. I mean, he cares about being perceived as being successful, as a winner. You know, the markets are going down, sad to say, not up. So I got to think at some point, even despite some of the comments he's made about, you know, we're happy to take some pain. We don't care if prices are higher. I think if you see

popular opinion really falling, I got to think that that's going to matter. If it doesn't, boy, we may be in for not just economic turmoil, but some political turmoil too, I think. Rana Faroohar is a columnist for the Financial Times and the author of Homecoming, The Path to Prosperity in a Post-Global World. Thank you so much for joining us today. Thank you for having me. Thank you.

This episode was produced by Matthew Cloutier and Brianna Scott. It was edited by Connor Donovan and Courtney Dorning. Our executive producer is Sammy Yenigan. It's Consider This from NPR. I'm Elsa Chang.

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