Tariffs, Trade War, U.S. Economic Policy and Solution
Current Economic Landscape
We have Red Sea chaos signaling concerns with the Trump administration’s bombing of Yemen. We also have consumer confidence at a 12-year low in the United States. Meanwhile, Donald Trump has been hinting at a recession, as have many banks.
Trump on Recession Concerns
This is what Donald Trump has said when asked about recession concerns:
“Are you worried about a recession?” Maria Murder asked, and you kind of hesitated.
“I’ll tell you what, of course you hesitate. Who knows? All I know is this: we’re going to take in hundreds of billions of dollars in tariffs and we’re going to become so rich you’re not going to know where to spend all that money. I’m telling you, you just watch. We’re going to have jobs, we’re going to have open factories. It’s going to be great.”
Business and Economic Analysis on Tariffs and Their Impact
Tariffs are a tax that a country puts on goods and services produced outside the country but that come into the country where they are finally sold and consumed. Tariffs are hundreds of years old—there’s nothing new, original, or exceptional about them.
There’s an immense amount of literature in every decent library full of books and articles explaining how tariffs work, their goals, and when they did and didn’t achieve those goals. The simple conclusion from all that literature is:
You don’t know when you impose a tariff what its results will be.
It’s a bit like raising an interest rate or changing the value of your currency—it can go this way or that way depending on the context and other factors. When you hear either Mr. Trump or any of his economic advisors telling you, “We’re putting on a tariff because it’s going to have this particular result,” you’d be better off talking to somebody else, because this is a person telling you something they cannot know.
Tariffs: Great, Terrible, or Just... Misguided?
When it comes to recent tariffs, opinions seem sharply divided – you’ll hear people calling them either disastrous or brilliant. As I see it, though, whether they’re “good” or “bad” really hinges entirely on what the objective was in the first place.
If we look at the stated goals often associated with President Trump’s implementation of tariffs – things like slashing the trade deficit, maybe even provoking a trade war, or, crucially, bringing manufacturing jobs back to the US – then from that specific viewpoint, one could argue the tariffs had potential. That objective certainly resonated with many middle-class and blue-collar Americans hoping for a return of those kinds of jobs.
However, I have a different take. While the goal of supporting American workers sounds noble, focusing on bringing back traditional manufacturing jobs feels like aiming only to help those who feel, perhaps, stuck. My concern is that we’d primarily be bringing back lower-paying roles – precisely the kind of jobs that individuals focused on personal and economic growth are trying to move beyond.
It reminds me a bit of the arguments around raising the minimum wage. While potentially helpful in easing immediate hardship, does it fundamentally change the trajectory for someone stuck in that position, or does it just make being stuck slightly less painful? I believe it often helps people suffer less in their current situation rather than actively fostering upward mobility.
Now, let me be clear: I’m not a politician or a geopolitical strategist. But looking at the immense leverage and technological advantages the US possesses, it strikes me that focusing energy on resurrecting lower-wage manufacturing isn’t the most forward-thinking approach, especially for individuals striving for significant personal and financial growth. Shouldn’t we be leveraging our strengths to create the high-value opportunities of the future, rather than trying to recapture the jobs of the past?
Concrete Impact of Current Tariffs
Trump is levying tariffs on our neighbors to the north and south (Mexico and Canada), on European countries, and on others. This means if you buy something from these places, you’ll have to pay more money—you’ll have to buy the object and pay whatever it costs plus the tariff, which is a tax imposed by the United States on these incoming goods and services.
For example, you might have to pay $20,000 for a motor scooter made in Italy, and if it has a tariff, an additional several thousand dollars (depending on how high they set the tariff) will go to the U.S. government. You’ll be out more money.
Key Impact: Tariffs will raise the prices of affected goods.
If we put a tariff on avocados from Mexico (where most come from), your avocado will cost more. Long story short, it’s going to worsen inflation. Do we know in advance that this will happen? No, it could be offset by something else—if oil and gas prices were to collapse, one might offset the other. Is that likely? No, which means tariffs will probably be inflationary.
Tariff Uncertainty Creates Economic Problems
There is something about Trump’s tariff program where we can know the result in advance: if you impose a tariff but leave the impression it might not last long or might be raised or lowered in the near future, you create dangerous uncertainty.
Trump has imposed tariffs, then taken them away, imposed large ones then switched to small ones. It’s unclear if they’ll last months, years, or indefinitely. This matters because:
Every large corporation that does business abroad (which is most large American corporations) or depends on buying/selling internationally has to calculate whether to invest in new operations. With this uncertainty, they’re not investing because they can’t decide where to invest.
Two of the largest Japanese automobile manufacturers have informed the Mexican government they’re holding back on planned investments in Mexico. Why? Because they don’t know if it makes sense to invest in Mexico hoping to sell those cars in the United States without a tariff. Maybe they should build in Texas, or a third country, or stay in Japan.
The result of Uncertainty
Many companies have announced they’re holding back investments because of tariff uncertainty. In capitalism, if the corporate sector holds back investment:
- It’s not hiring workers it might otherwise have hired
- It’s not buying goods and services it would have needed for that investment
- Demand for people and products falls
- We get what’s called a recession
This is why we’re hearing recession talk. The fault lies first with corporate executives who make investment decisions. In a capitalist system, we’re all held hostage for our jobs and incomes by the decisions of the tiny minority of top executives who make all the investment choices. Trump’s fault is making life so uncertain for them that they’re reacting in their typical way, leaving us all wondering about a recession’s impact.
Foreign Policy and Tariffs Beyond Traditional Use
Consumer confidence is at a 12-year low, yet Trump’s foreign policy has not been experiencing a recession. We’ve seen bombs over Yemen and recently a move escalating tariffs on Venezuela—imposing a 25% tariff on anybody trading with Venezuela in oil, particularly targeting China.
The Venezuela policy represents a remarkable extension of traditional tariff use. A normal tariff is imposed on goods coming from another country into your own. What the U.S. did with Venezuela is different—it’s not about Venezuelan goods coming to the U.S.
Instead, the U.S. said it would impose tariffs on countries that do business with Venezuela, particularly buying oil and gas. This is called a secondary boycott: punishing any country or entity that does business with someone we don’t like. This is the behavior of a nation that wants to control world trade.
Countries buy oil and gas from Venezuela because it’s a good deal—maybe they’re nearby so shipping costs less, or Venezuela offers better prices. Until recently, U.S. leaders would have insisted that free trade is what we believe in: Venezuela should be able to sell what it has in the market at whatever price it negotiates with buyers.
The Irony of U.S. Trade Policy
For 40-50 years, the United States has been the champion of global free trade—the country insisting government shouldn’t dictate economic activity, that markets are efficient and produce the best outcomes. Either we were lying then, or we’ve had an epiphany and dropped all of that.
The explanation: We are losing the competition in the world free market.
If you pay attention to public statements from leaders like Xi Jinping, China is now pushing free trade while the United States backs away. The Chinese figured out how to do what the United States used to excel at: produce high-quality goods at low prices.
The Chinese are showing us that others can do what the United States did, just as the United States showed Britain a century ago that we could outperform them. Competition has winners and losers, and winners often forget they’re giving losers an incentive to come back stronger. This works in sports and economics alike.
The Tesla vs. BYD Example
Elon Musk became the world’s richest man with Tesla because he produced something new—an electric vehicle—and initially did it better and cheaper than anyone else. But in the global market, others wanted in on that success.
Among many competitors, the Chinese corporation BYD (Build Your Dream) produced a better electric vehicle at a lower price than Tesla. Now Tesla’s sales figures are declining worldwide—in Europe, the United States, and China, where BYD has sold more cars in the last year than Tesla.
The U.S. Response to Competition
The question facing the United States is: do you acknowledge these competitive realities and develop a plan to manage them, or do you get desperate and try to control everything? Unfortunately, Trump appears to favor control, but this approach won’t work.
The Venezuelans will circumvent these measures just as:
- Russians have gotten around sanctions meant to defeat them in Ukraine
- Iranians have circumvented sanctions meant to diminish their influence
- North Korea has survived similar pressures
- Cuba has endured over half a century of total embargo
Such policies enable targeted countries’ leaders to rally their people around nationalist sentiment: “Support us as we struggle against the powerful United States.” You end up solidifying the political power of the very people you target.
As the saying goes, when you shoot at something and the bullet bounces back to hit you in the nose, it’s time to stop shooting.
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Trade War FAQs
Tariffs backfire because they create a cascade of unintended consequences throughout the economy. While they appear to protect domestic industries by making foreign goods more expensive, they simultaneously increase costs for consumers, trigger retaliatory measures from trade partners, and—most critically—create investment uncertainty that paralyzes business decisions.
When corporations can’t confidently determine where to build factories or expand operations due to unpredictable tariff policies, they simply freeze investments altogether. This investment paralysis reduces hiring, decreases purchasing of materials and services, and ultimately contracts the economy—precisely the opposite effect of what tariff proponents promise.
China’s evolution from student to teacher in global manufacturing represents a classic case of competitive adaptation.
For decades, America championed free market principles while maintaining manufacturing superiority, but China studied this playbook meticulously while adding its own innovations.
Just as the United States once outperformed Britain industrially, China has mastered America’s former strengths—producing high-quality goods at competitive prices—while developing formidable new capabilities in emerging sectors like electric vehicles.
The BYD Corporation overtaking Tesla in sales perfectly illustrates this transition, demonstrating how winners in global competition inadvertently provide losers with both the blueprint and motivation to surpass them, creating a continuous cycle of economic leapfrogging that America is struggling to acknowledge.
Sanctions and trade restrictions fail because they consistently produce two counterproductive outcomes.
First, targeted nations develop sophisticated workarounds—as demonstrated by Russia, Iran, North Korea, and Cuba’s ability to navigate around American economic pressure.
Second, and perhaps more importantly, these restrictions provide foreign leaders with a powerful narrative tool to consolidate domestic power.
When populations experience economic hardship from external pressure, leaders can frame themselves as patriotic defenders against foreign aggression, turning what was intended as a wedge between government and citizens into a powerful unifying force.
Agile and Scrum methodologies—originally designed for software development—offer powerful solutions for broader business adaptation during economic uncertainty.
Agile principles help organizations respond to tariff-induced market changes through iterative planning, cross-functional collaboration, and rapid course correction. Rather than making long-term commitments that might be undermined by sudden policy shifts, companies adopting Agile work in short “sprints,” regularly reassessing priorities based on the latest trade developments.
This enables businesses to pivot supply chains, adjust product specifications, or target new markets quickly as tariff situations evolve.
Scrum’s specific framework brings additional structure through defined roles and ceremonies.
The Sprint Planning meeting allows teams to identify immediate priorities amid changing trade conditions, while Daily Standups ensure everyone stays informed about emerging tariff impacts.
Sprint Reviews and Retrospectives create formal opportunities to evaluate how recent trade policy changes affect strategy.
Together, these practices transform economic uncertainty from a paralyzing force into a series of manageable challenges that can be addressed methodically, allowing businesses to maintain momentum even when global trade conditions remain highly unpredictable.
