The trouble with Trump’s tariffs

In April, Trump announced on what he dubbed “Liberation Day,” a regime of tariffs on every country in the world, based on a sketchy formula that assigned higher tariffs to countries where the US had trade deficits.

Stock markets went into a free fall, there was a huge selloff in US bonds, and Wall Street and other business titans spoke out against the tariffs. Trump pulled back, said he would make multiple deals over the next 90 days, and the stock market went back to setting records. Wall Street coined a term for Trump’s move: “TACO” for “Trump Always Chickens Out.” The idea is that if Trump sees his tariffs as leading to a stock market decline, we’ll lessen them or lift them altogether.

So, in early August, with very few deals in the books, the Trump administration instituted broad-based tariffs. And unlike in April, the market took it in stride, even though they amount to the highest U.S. tariffs in a century, with a levy of 15-20 percent on all importers to the US. Trump carved out some countries for higher tariffs: Brazil at 50%, due to its prosecution of former President Jair Bolsonaro, for launching a January 6-like coup to retain power after he lost the 2023 election. Trump set tariffs on India at 50 percent, reputedly to punish it for importing Russian oil, but possibly also for refusing to support Trump’s delusional bid for a Nobel Peace Prize.

Then, on August 29, the U.S. Court of Appeals for the Federal Circuit upheld an earlier decision that declared most of Trump’s tariffs illegal. The fate of Trump’s tariffs will shift to the U.S. Supreme Court.

A tariff is a tax on imports paid to the US government. U.S. importers pay it. In fact, many of them are unable to claim their products from arriving at a U.S. port until they pay the tariff. The real payers of tariffs are U.S. consumers who directly pay higher prices on imported goods such as coffee, or who pay higher prices indirectly on products whose prices increase because prices on inputs used to produce them increase. Think, for example, of cars or household appliances whose prices increase because tariffs have increased the prices of imported steel and aluminum used to build them. Prices may not have spiked much yet, but if the tariffs remain in place, it’s likely that we will see prices increase by the end of 2025.

The Yale Budget Project estimates that tariffs will add about $2,800 to costs for the average household over the next year. And some estimates suggest they could add $4,000-$5,000 to the cost of a new car. So much for Trump’s promise to lower prices on day 1!

Government statistics are starting to pick up inflation in particular goods and sectors that rely on imports. There are three main reasons why most people have not yet experienced big tariff-fueled price increases. First, many companies, anticipating that Trump would impose tariffs, “front ran,” meaning that they built up their inventories before the tariffs went into effect. It’s likely that decline in the first quarter gross domestic product, which most economic analysts attributed to an abnormal increase in imports, reflected front-running behavior.

Second, companies are currently eating the costs, eroding their profits, rather than passing them onto consumers. It’s possible that some companies were relying on the courts tossing out the tariffs, or a mercurial Trump deciding to lower them. Both GM and Ford reported losses in the billions that they attributed to tariffs. They have yet to raise prices across the board.

Finally, other countries have yet to retaliate with tariffs of their own against exports to the U.S.

But these strategies merely push off the tariff shock to the future. Unless companies want to accept lower profits, or in worse cases, layoffs, or bankruptcy, they will be forced to raise prices for their consumers. Business media happy talk about the U.S. economy’s resilience in the face of Trump’s tariff chaos had a short shelf life.

Much of the neoliberal commentariat treats Trump’s tariffs as an absurdity, akin to RFK Jr’s anti-vax demolition of science or the crackpot beliefs of flat earthers. But the left Keynesian economist Yanis Varofakis, the former finance minister in the Syriza government in Greece, says that we must take Trump’s tariffs seriously. Trump has been ideologically committed to tariffs and an autarchic or nationalist view of the U.S.’s role in the world economy for decades. In recent decades, economic nationalism has been rising across the entire U.S. ruling class, as administrations of both major capitalist parties seek to compete with China and to prod the European Union to increase its military spending.

Besides the fact that Trump seems to believe that tariffs will ignite a U.S. “golden age,” he also sees them as a way to wield his clout, both domestically and in foreign affairs. He has arguably been more successful on the domestic front, as his on-again, off-again threats to levy tariffs on certain industries lead those industry CEOs to make concessions or donations to Trump. The opportunities for corruption are endless.

On the foreign policy front, Trump has managed to reset the U.S.’s average tariffs on imports to somewhere between five and six times what they were in 2024, without yet experiencing widespread blowback from U.S. trading partners. He and other tariff “hawks” in the administration calculate that other countries have more to lose from being locked out of the U.S. than the U.S. has to lose in trade with them.

Canadian Prime Minister Mark Carney, elected in an anti-Trump “Canada Strong” campaign earlier this year, recently lifted retaliatory tariffs against the U.S., the destination of 75 percent of Canada’s exports. Canada is now attempting to arrive at a deal that will limit U.S. tariffs on certain targeted Canadian exports, such as lumber, steel, and aluminum.

On the other hand, Trump’s impetuous decision to place a 50 percent tariff on imports from India threatens to undermine the decades’ long U.S. cultivation of India as a counterweight to China in Asia. The symbolism of leaders of India, China and Russia meeting together in Beijing wasn’t lost on mainstream foreign policy hands.

Varoufakis thinks that tariffs may lead to a slowdown in the US economy, but the U.S. is still sucking in massive amounts of capital from the world. If that continues, Trump may be able to get away with the tariffs, even if they don’t produce the things he’s promised they will: reshoring of American industries or replacing the income tax, among some of the more far-fetched. But if Trump succeeds in cutting the US trade deficit, other countries will have fewer dollars to reinvest in the U.S. stock market and in other assets.

To Marxists, tariffs are neither good nor bad. They are no better nor worse than “free trade.” They are just one mechanism that capitalist states use to gain advantage over other capitalist states in the international economy.

“Free trade” is most often the policy of the global economic and military hegemon. Britain in the 19^th century pushed for “free trade” as a way of expanding markets for its industrial economy. Similarly, since the 1930s, it has been a policy of the U.S. government to expand free trade.

The breakdown of free trade today is part of breakdown of the unipolar U.S. empire that existed in the decades following the Cold War and the collapse of the USSR-dominated Eastern Bloc. Now that China is in a close competition with the U.S., the U.S. government and its business leaders have embraced more protectionist measures against it. Here is where the politics of tariffs enter the discussion.

For now, if most people associate tariffs with higher prices, they are among the most unpopular parts of Trump’s already very unpopular agenda. But one place where they are not condemned—outside of MAGAWorld and a few favored industries—is in the U.S. labor movement.

It has been unfortunate that leaders like UAW President Shawn Fain, Teamsters President Sean O’Brien and the United Steelworkers of America have embraced the Trump tariffs. Even worse, this isn’t anything new in labor. “Buy American” has been part of the labor movement for decades. But for labor to buy into Trump’s tariffs now, when Trump and his administration are waging an existential war against labor is really letting MAGA off the hook.

Industrial union leaders support tariffs as a way to prop up U.S. industries where their dwindling ranks work. But support for tariffs targets the wrong enemy. The socialist labor scholar Kim Moody has shown that declining jobs, unionization and living standards in the US owe more to automation and speedup than to trade.

Socialist labor activist Andy Sernatinger’s critique of the UAW’s position titled “Nationalism, workers’ power, and the myth of auto tariffs” showed that there are as many autoworkers today in the U.S. as there were in 1992 before the North American Free Trade Agreement (NAFTA), but far fewer of them are in unionized jobs. That’s because the unions have conceded control of the shop floor and have only weakly competed for non-union workers in plants in the U.S. south where much of the job growth in recent decades has been.

For labor to sign on with policies that are shot through with anti-Chinese nationalism and racism is extremely dangerous. Labor activists should remember the1980s case of Vincent Chin, a Chinese American man who an auto industry supervisor beat to death with a baseball bat. Chin’s killing took place at a time when the UAW was leading an anti-Japanese car campaign that featured media events in which union members smashed up Japanese-made cars with bats and hammers. Chin’s killer shouted racial slurs at him while he beat him.

Not only does this sort of politics sow divisions among workers, but it contributes to the general racist and nationalist climate the Trump administration is leading from the top. It lays the foundation for political support for further economic, political, and military confrontation with China.

Even if tariffs don’t have the catastrophic impacts—like COVID-era empty store shelves and price gouging—that many predicted, they will still contribute to a slowing economy, higher prices, and potentially mass layoffs. The jobs economy is already weak, and, the number of job openings is around the level it was during the COVID recession.

It’s not clear that Trump’s tariffs are the cause of all these problems. There is solid evidence that consumer spending was tapped out at the end of last year, before “Liberation Day.” But tariffs are not going to improve the situation. And in the current context, Trump’s tariffs are just another attack on the working class.