Trump Tariffs: Paying the Price and Ignoring the Value

A key element of the Trump narrative of the United States as a victim is the idea that we are being taken to the cleaners by our trading partners, friend and foe alike. Our tariffs and barriers are low and theirs are high, so, by definition, they are taking advantage of us. We are paying to support them, and one of the rationales for “reciprocal” tariffs is to get our money back. This is not historically accurate, but we all know we are well past the point where actual reality matters. Rather than argue the history, however, this week, I want to make the point that we actually are getting our money’s worth—it’s all in how you measure. At this point, a classic quote by Oscar Wilde comes to mind: “A cynic is a man who knows the price of everything, and the value of nothing.”

The Trump administration certainly claims to know the price of everything, and it will shortly reflect that when it announces the various tariffs it intends to impose on just about everybody. Whether their pricing is accurate is a different question, and one that cannot be addressed in advance. It also misses the point, which is what we are already getting for our money.

First is relative peace and prosperity. The “law of the jungle” system under Trump would risk repeating the mistakes of the nineteenth century, which led to multiple conflicts, as well as two world wars and the Great Depression in the twentieth century. In the 80 years since the multilateral trading system was created at Bretton Woods, we have had no global wars and a number of manageable recessions. The rules we established have also brought more than one billion people out of poverty. Trump likely doesn’t note this because most of them were not Americans, but the net gain for the world has been enormous.

And that gets to the fundamental point—when the rest of the world is better off, so are we. A stable world with moderate economic growth lifts a lot of boats. When 95 percent of the world’s consumers are outside the United States, the only sensible thing for U.S. companies that want to grow is to engage internationally and export, and prosperous countries will be able to buy our products. The United States is a mature, slow-growth economy with a declining population (that will be declining faster as Trump deports more people and discourages immigration). It is a mistake for most companies to assume they can prosper by only serving the U.S. market.

We will soon learn more about this via the domestic auto industry, Trump’s first big victim, and one of the most globally integrated industries. After an initial rush to buy cars already in inventory and thus not affected by the new tariffs, we can expect sales to slow significantly as demand drops and companies struggle with adjusting their supply chains. The shift to more domestic auto manufacturing, if it happens at all, will take years. Consumers will end up with more expensive cars and fewer choices, as companies shelve models that are imported, and companies will find themselves less profitable and less globally competitive.

Second, the administration is squandering our soft power. Foreign aid, for example, is not just a feel-good charitable activity. Food aid involves purchasing from our own farmers, which helps keep them afloat. Along with our health care programs, it helps keep people in many poor countries alive. Some of those people become their countries’ entrepreneurs and leaders, and they remember what the United States did for them. Now they will remember that we abandoned them. Trade-related programs like the Generalized System of Preferences Reform Act and the Africa Growth and Opportunity Act don’t just benefit the target countries. They benefit us via cheaper products and the construction of stronger commercial relationships that will bring us benefits in the future.

Similarly, silencing the Voice of America is another self-inflicted setback, wasting an opportunity to showcase the idea of the United States—freedom and democracy—and to combat lies and misinformation that prevent us from achieving our foreign policy objectives. Our global presence in nearly every country in hundreds of different ways is a tangible reminder of who we are and what we stand for, and an effective way to help persuade other nations to support our goals.

Third, in an economically and digitally connected world, multilateralism matters. Trump may not care about global commons issues like climate change that can only be solved through collective action, but he should certainly care about how Chinese overcapacity is crippling other nations’ industries, including ours. A single-nation response, like his tariffs, is just squeezing the balloon. The overproduction will appear somewhere else in the world and could well end up in the United States anyway through various legal and illegal circumvention strategies. The only effective measure is for all the affected countries to work together.

As we have learned countless times, achieving multilateral cooperation is difficult under the best of circumstances, but Trump is creating the worst of circumstances by alienating our allies and friends. Why would Canada and Mexico want to help us after what we’ve done to them? Might never makes right, but in the nineteenth century, it at least let you get away with things. The twenty-first-century economy is too interconnected for that. Massive tariffs will end up bankrupting U.S. companies as well as foreign companies.

Trump may or may not be one of Oscar Wilde’s cynics, but he clearly doesn’t know the value of the United States’ presence in the world. Unfortunately, it will be Americans who end up paying the price.

William A. Reinsch is senior adviser and Scholl Chair emeritus with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.