President Donald Trump’s move to impose 10% baseline tariffs on all U.S. imports — along with raising tariffs on individual trading partners to approximately 50% of the rates Trump claims they currently impose on American goods — sent financial markets around the world into free fall last week.
It shouldn’t have been a shock. Trump has been calling for an overhaul of international trade since the 1980s. In a 1988 interview with Oprah Winfrey, Trump sounded the alarm over the U.S. trade deficit with Japan, accusing the country of flooding American markets with cars and electronics. At the same time, he pointed out that Japan’s trade barriers made it nearly impossible for American products to gain entry into Japanese markets. Asked what he would do differently, Trump replied that he would “make our allies pay their fair share… I think people are tired of seeing the United States ripped off.”
He wasn’t alone. Rep. Nancy Pelosi (D-CA), Sen. Bernie Sanders (I-VT), and former President Barack Obama have all made the case for tariffs. And although Trump imposed tariffs on China during his first term and frequently highlighted them as a core element of his economic plan on the campaign trail, it was likely the sheer scale of the tariff program unveiled on “Liberation Day” that caught people by surprise.
Uncertainty and fear have subsequently triggered historic levels of volatility in the financial markets giving investors a wild ride over the past week. It’s also true that the markets are significantly down on where they were prior to Trump’s announcement. Many are calling Trump’s high-stakes gamble unnecessary, unprecedented, and reckless. But let’s consider a few different scenarios as to what might happen next.
What if the tariffs fail?
Trump took an enormous risk — arguably the most politically perilous move I’ve ever seen a U.S. president take. If the tariffs fail, Trump’s presidency will likely be remembered as a failure — and the U.S. economy might take years to recover.
Failure could take many forms, but the most immediate and measurable effect is the loss of wealth in the stock market. Over 60% of people have some exposure to equities through individual stocks, mutual funds, 401(k)s, or IRAs. The sharp declines in the Dow Jones Industrial Average, 1,679 points on Thursday and 2,231 points on Friday, left investors rattled. The beginning of the week brought smaller losses on Monday and Tuesday, followed by a dramatic 2,963-point rally on Wednesday, driven by Trump’s announcement of a 90-day pause on tariffs. But by Thursday, the market gave back more than 1,000 points, or roughly 2.5%. Particularly for those planning to retire soon, this level of market volatility is unnerving and deeply problematic for their future aspirations.
Additionally, the tariffs could trigger a significant spike in inflation, disproportionately affecting lower- and middle-income people. Prices on everyday goods may rise sharply as businesses pass the added costs onto consumers. The tariffs could also spark a trade war that disrupts global supply chains, hits export industries hard, and continues to roil financial markets. Key U.S. economic sectors, such as agriculture and manufacturing, also risk losing access to vital foreign markets.
Perhaps the greatest concern is that the tariffs could cut into economic growth or even tip the United States into a recession. That is quite possible in the near future. Businesses have postponed major projects and planned investments as they await the outcome of the current turmoil. Financial market initial public offerings, and mergers and acquisition activity have been put on hold.
What if the tariffs succeed?
On Monday, analysts at Goldman Sachs raised the probability of a U.S. recession within the next 12 months to 45%, up from 35% the previous week. However, just minutes after Trump’s Wednesday afternoon announcement — in which he increased Chinese tariffs to 125% and authorized a “90-day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%” for the 75 countries engaged in negotiations — the investment bank reversed its outlook. In a follow-up note, analysts stated: “We are reverting to our previous non-recession baseline forecast.”
The central goal of the tariffs is to bring manufacturing back to the U.S. Many companies have already pledged to open new facilities on American soil. Beyond helping them avoid tariffs, this growing trend could drive substantial job growth and strengthen the U.S. economy in the long run.
Trump also claimed during his “Liberation Day” press conference that the mere threat of tariffs had already prompted corporate CEOs to pledge $6 trillion in new investments within the U.S. This will add to GDP and it will create new jobs.
At the end of the day, Trump is a businessman — and so are several of his top economic advisers, including Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick. Maybe they know what they’re doing. To his credit, Trump has consistently acknowledged that there may be some initial pain. But what he is trying to achieve is undoubtedly monumental: a reset of the global distribution of power and a courageous effort to reclaim America’s economic sovereignty.
I would argue that this was a situation that demanded action sooner rather than later. The cost of doing nothing would have been far greater. For decades, too many of our trading partners have taken advantage of the U.S., costing us many billions of dollars each year in lost annual exports.
It’s also important to note that China is a dishonest trade partner
Since China’s accession to the World Trade Organization in December 2001, its economy has grown eleven-fold, making it the second-largest in the world.
But China has not been an honest broker. It steals hundreds of billions of dollars’ worth of U.S. intellectual property each year. This includes forcing foreign companies operating in China to hand over proprietary information.
But that’s just the start.
Chinese hackers are responsible for a wide range of cyberattacks targeting U.S. government agencies, defense contractors, universities, and corporations. And China is the primary source of the chemical precursors used to produce fentanyl — a drug responsible for the deaths of more than 70,000 Americans annually.
China’s nontariff barriers have also drawn sharp criticism. China has manipulated its currency to boost exports, heavily subsidized domestic industries to undercut American competitors, and dumped goods at below-market prices to drive U.S. manufacturers out of business. It has also failed to open its markets as promised.
The Chinese government has tried to interfere in U.S. elections and engaged in widespread propaganda campaigns aimed at influencing U.S. politicians, media, universities, and corporate leaders. They lied to the world about the origins of COVID-19 and even sent a spy balloon over the U.S. in 2023. Put simply, they cannot be trusted.
What about the rest of the world?
According to the treasury secretary, 75 countries have already contacted the White House to begin negotiations. To me, that sounds more like hope for compromise than the start of a global trade war. The reality is that many foreign economies need America more than we need them.
TRUMP’S TARIFFS ARE TRAMPLING ALLIANCES AGAINST CHINA
China, on the other hand, shows no willingness to work with Trump on a compromise and has vowed to “fight to the end.”
Still, if Trump can get 75 nations to negotiate new trade deals and simultaneously isolate China, that will be a big win. We should support him. After all, his bold gambit might just work.
