A recession will make you great again

There is an ideological and geopolitical logic to Trump's tariffs. But shoddy execution and arrogant laziness may be America's undoing.

Trump’s so-called ‘Liberation Day’ announcement of new tariffs on imported goods from across the world has generated an enormous volume of overwhelmingly negative commentary. For the most part, such commentary focuses on the obvious negative economic impacts - on target countries and on the United States - of America’s adoption of high import tariffs. Based on that commentary alone, the Trump Administration would merely be crazy imbeciles who don’t know what they’re doing. A smaller share of available commentary has focused, and justifiably so, on the actual intent of the tariffs, for example FT columnist Gillian Tett’s view that a geoeconomic lens, rather than a mainstream economic lens, should be applied to make sense of the new American policy.

Early next week, my colleagues and I at the Finnish Institute of International Affairs will have our own short commentary largely following that same angle. I will not engage in a spoiler for that piece here, but rather add additional considerations that I have not yet seen elsewhere. But first the basics from both the (mainstream) economic perspective and the ‘geoeconomic’ perspective (which really means power politics through economic means).

The economic perspective

Tariffs are bad. They lead to higher prices in the country that imposes them, which in turn depresses consumption (there’s less income available for other purchases) and ultimately aggregate demand. Other things equal, the country that imposes new or higher tariffs should expect both lower GDP growth and higher inflation. The countries targeted by the import tariffs will see their export revenues fall, which will directly act to lower their GDP growth. In short, everybody loses. But it doesn’t stop there.