More than 18 months have passed since US President Donald Trump launched his so-called Liberation Day tariffs. On Tuesday, US electorate went to the polls for the midterms, with recent polling revealing uncertainty over how Mr Trump’s shifting tariff policy could affect their personal finances.
Like America’s third president, Thomas Jefferson, in the early 19th century, Mr Trump has used economic measures to counter what he perceived as exploitation by foreign powers. The initial indications are that Mr Trump, like Jefferson, has found economic coercion insufficient to achieve his goals.
During the height of the Napoleonic Wars, Anglo-French naval conflict was adversely affecting the neutral and fledgling American nation. Jefferson’s government was outraged by the increasing incidence of impressment – the practice of forcibly recruiting sailors from American merchant vessels into British naval service. After failed attempts to negotiate respect for US shipping, Jefferson took the drastic step in 1807 of halting American overseas exports and preventing American ships from sailing to foreign ports.
The objective of this drastic escalation was to inflict sufficient economic pain on Britain and France to persuade them to refrain from interfering with American shipping. However, just over a year later, Jefferson was forced to backtrack for three reasons. First, the British continued impressment, aided by the relative ease with which they could obtain alternatives sources of goods previously imported from US. In fact, France used the embargo as a pretext to begin seizing American ships that it had previously ignored. Second, American exporters suffered and lobbied for a policy reversal. Third, the embargo was difficult to enforce given the incentives to smuggle. The simple bottom line was that the pain suffered by the embargo’s architect exceeded that felt by its targets.
Last year, Mr Trump tacitly recognised certain parallels with the situation Jefferson had faced almost 220 years earlier. According to Mr Trump’s worldview, the modern equivalent of Britain’s impressment of American mariners is foreign countries exporting more goods to the US than the US exports to them (bilateral US trade deficits) – a phenomenon he explicitly regards as exploitative (a view with which most economists strongly disagree). Although Trump did not resort to the nuclear option of a comprehensive Jeffersonian embargo, his chosen course of action was still unprecedented: the imposition of significant tariffs on almost every trade partner – including those with which the US has bilateral free trade agreements – with higher tariffs imposed on countries that have trade surpluses with the US.
In principle, the tariffs would have a dual effect. First, by making imports more expensive, they would, under certain conditions, lead to a decrease in the dollar value of total imports. Second, the economic pain suffered by other countries would force them to negotiate arrangements with the US involving a structural shift in the trade balance towards a US surplus.
It is important to note that reducing the deficit was not Mr Trump’s only goal. The imposition of tariffs also served the broader objective of reshaping trade routes to decouple the US economy from that of China. Furthermore, the tariffs were so substantial that the resulting revenues could significantly improve the government’s fiscal balance. Nevertheless, the available evidence suggests that the tariffs were primarily an exercise in reducing American trade deficits.
Eighteen months is not enough time to judge Mr Trump’s tariffs, but it does suffice for an initial assessment, notwithstanding the US Supreme Court’s February decision to overturn some of the tariffs. Between January and August 2024, the US trade deficit in goods alone stood at $770 billion (Dh2.82 trillion). During the corresponding period this year, it reached $802 billion – an increase of 4.5 per cent. When trade in both goods and services is included, the increase stands at 1.3 per cents.
Turning to bilateral trade deficits, the US successfully reduced its deficit with China by more than 40 per cent. However, as the aggregate figures demonstrate, the US has likely redirected trade rather than structurally reformed it: deficits with Cambodia, India and Vietnam rose by double-digit percentages. Moreover, given the extent of China's economic footprint beyond its borders, some of the burgeoning imports from other Asian countries are likely to consist of Chinese products incorporated into those countries’ exports.
Furthermore, the analogy with Jefferson’s embargo extends beyond the apparent struggle to achieve the stated objectives. In particular, US businesses have suffered from rising import prices, disrupted supply chains and diminished export opportunities as other countries have retaliated in kind. Consumers, too, have experienced higher consumer price inflation. Studies suggest that the overwhelming burden of the tariffs has been borne by a combination of American consumers and producers rather than, as Mr Trump had hoped, by the countries exporting to the US.
It took 14 months for Jefferson to relent, meaning Mr Trump has already lasted longer than the Founding Father. Moreover, his ideological commitment to tariffs, which he has articulated since his days as a businessman in the 1980s, suggests that he will not change course even if compelling evidence emerges that the policy is backfiring.
The broader lesson is that globalisation is a powerful driver of prosperity for Americans and non-Americans alike, and that any country that unilaterally disrupts global commerce will likely suffer more than those that continue to embrace the system. This was acutely true when the US was a secondary actor in the global economy of the early 19th century, and it will probably remain true as the US’s 21st-century economic supremacy continues to be challenged by rising powers such as China and India.
