Trump is betting the economy on his tariff theory

Summary

Consider This: Trump is Betting the Economy on His Tariff Theory

Episode Release Date: April 1, 2025
Host: Ailsa Chang
Guest: Rana Faroohar, Columnist for the Financial Times

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Introduction: A Pivotal Moment for Trump's Tariff Strategy

In the latest episode of NPR’s Consider This, host Ailsa Chang delves into President Donald Trump’s ambitious tariff plan, dubbed "the big One," which he views as a transformative measure for the U.S. economy. The episode was released on April 1, 2025, a strategic date marked by Trump as "Liberation Day" (00:00).

President Trump highlighted the significance of the day in his address:

“I call it a lot of different names, but it’s really, in a sense, it’s a rebirth of a country because...” (00:16)

Current Tariff Landscape: Building on Existing Measures

The administration's upcoming tariff package is set to impose additional tariffs immediately, adding to the existing framework. Previously announced tariffs include:

• 25% tariff on imported cars
• 20% tariff on all products from China
• Up to 25% tariffs on select goods from Canada and Mexico

These measures have been central to Trump’s economic policy, aiming to protect American industries and reduce trade deficits.

Economic Concerns: The Risk of a Trade War and Recession

Contrary to Trump’s bullish stance on tariffs, many economists express significant concerns about their long-term impact. Mark Zandi, a prominent economist, warned of an escalating trade war and flagged the high risk of a recession:

“We’re raising tariffs on our trading partners. They’re responding with tariffs on our products. We’re lobbying nasty rhetoric at them. They’re doing the same to us.” (00:53)

Zandi further elaborates on the mounting economic damage:

“The economic damage so far has been modest. But with each passing day that the war continues, the damage is starting to mount.” (01:06)

Trump’s Vision: A Multi-Faceted Tariff Tool

President Trump envisions tariffs as a versatile tool to achieve several objectives simultaneously. According to Consider This, tariffs serve as:

1. Negotiating Tool: Leveraging tariffs to pressure Canada and Mexico into favorable border policies.
2. Revenue Source: Potentially offsetting his proposed $4.5 trillion in tax cuts.
3. Shield for Manufacturing Jobs: Protecting American industries from overseas competition.

Trump succinctly encapsulated his goals in a congressional address:

“Making America rich again and making America great again. And it’s happening and it will happen rather quickly.” (01:29)

Expert Analysis: Rana Faroohar on Tariff Contradictions

To unpack Trump’s tariff strategy, Ailsa Chang converses with Rana Faroohar, a columnist for the Financial Times and author of Homecoming: The Path to Prosperity in a Post-Global World.

Conflicting Objectives of Tariffs

Chang raises the issue of contradictory purposes behind the tariffs, questioning how they can serve as both a long-term revenue source and a short-term bargaining chip. Faroohar responds:

“They haven’t explained them well. And I think that’s one of the reasons that markets have actually been very jittery in the last days and weeks.” (03:25)

She emphasizes that the current tariff strategy represents an unprecedented experiment, potentially altering the global and American economic landscape significantly.

Psychological Factors and Nationalism

Faroohar underscores the importance of understanding Trump’s psychological motivations, noting his belief that the U.S. has been disadvantaged in international trade. She contextualizes this with data on U.S. tariffs:

“Average U.S. tariffs on the rest of the world are around 2%. Europe, EU would be about 5%. China would be about 10%.” (04:35)

While she acknowledges that tariffs are slightly higher than average, she argues against framing trade deficits merely as subsidies. Instead, Faroohar points to the broader strategy of supporting critical domestic industries for economic security.

Impact on American Consumers and Industries

Economists have found that Trump’s tariffs primarily burden American consumers through higher prices. When asked if it’s possible to balance trade deficits without increasing consumer costs, Faroohar is skeptical:

“Probably not this time around... you might see reciprocal tariffs, potentially the beginning of a trade war. That’s real, that’s a real worry.” (05:50)

She doubts the administration’s assurances that China will absorb some of the costs this time, given the expanded scope of the proposed tariffs.

Market and Public Reaction: Signs of Turbulence

The market has reacted negatively to the latest tariff announcements, reflecting broader economic anxiety. A pivotal concern is whether shifting public opinion against tariffs could pressure Trump to alter his course.

Faroohar speculates on Trump’s sensitivity to public perception:

“I gotta think at some point, even... if you see popular opinion really falling, I gotta think that that’s gonna matter.” (07:49)

She warns that sustained negative public and market reactions could lead to significant economic and political turmoil, contrasting with Trump’s dismissal of consumer price hikes as a metric for success.

Conclusion: The Uncertain Path Ahead

Rana Faroohar concludes that while Trump’s tariff strategy aims to rejuvenate American industry and assert economic sovereignty, the lack of coherent explanation and potential for a full-scale trade war pose substantial risks. The episode underscores the high stakes of Trump’s economic gambit and the fine balance between nationalistic policy and global economic integration.

Rana Faroohar adds a closing thought:

“If it doesn’t, boy, we may be in for not just economic turmoil, but some political turmoil too.” (07:49)

Ailsa Chang wraps up the discussion, highlighting the critical nature of the ongoing tariff debates and their implications for the future of the U.S. economy.

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Produced by Matthew Cloutier and Brianna Scott. Edited by Connor Donovan and Courtney Dorning. Executive Producer: Sammy Yenigan.

For more insights and updates, visit plus.npr.org/considerthis.

Transcript

[Ailsa Chang]

President Trump has billed Wednesday as a pivotal moment in his administration.

[President Trump]

We have Liberation Day, as you know, on April 2nd.

[Ailsa Chang]

This is the day we will find out what is included in his latest package of tariffs, which he has called the big One.

[President Trump]

I call it a lot of different names, but it's really, in a sense, it's a rebirth of a country because.

[Ailsa Chang]

The White House says the tariffs will take effect immediately. These would be on top of the tariffs that President Trump has already announced, which, if you have lost track by now, include a 25% tariff on imported cars and across the board, 20% tariff on products coming from China and up to 25% tariffs on some goods from Canada and Mexico. Trump loves these tariffs, but many economists do not. Like Mark Zandi, who told NPR on Tuesday that the U.S. is in a trade war.

[Mark Zandi]

We're raising tariffs on our trading partners. They're responding with tariffs on our products. We're lobbying nasty rhetoric at them. They're doing the same to us.

[Ailsa Chang]

Zandi says the risk of a recession is uncomfortably high.

[Mark Zandi]

The economic damage so far has been modest. But with each passing day that the war continues, the damage is starting to mount.

[Ailsa Chang]

The Trump administration has acknowledged that there may be some negative short term impact. They call it a detox period or a disturbance. But Trump says tariffs will ultimately reshape the economy for the better. Or as he put it in his joint address to Congress, tariffs are about.

[President Trump]

Making America rich again and making America great again. And it's happening and it will happen rather quickly.

[Ailsa Chang]

Consider this. Trump is betting big on his tariffs plan. He's staking the U.S. economy on it. From NPR, I'm Ailsa Chang. It's consider this from NPR. To hear President Trump tell it, tariffs are perhaps the political equivalent of duct tape. You can use them to fix almost anything. For example, they're a negotiating tool. He used the threat of tariffs to pressure Canada and Mexico to implement border policies that he liked. Tariffs are also a revenue source to Trump that might help offset his proposed $4.5 trillion in tax cuts. And in Trump's view, tariffs can be a shield to protect American manufacturing jobs from overseas competition. The thing is, tariffs can't actually be all of those things at once. And so with Wednesday's planned announcement of even more tariffs, we wanted to try to answer a seemingly simple question. What is President Trump's goal with tariffs? For that, I'm joined by Rana Faroohar. She's a columnist for the Financial Times and joins us now. Welcome.

[Rana Faroohar]

Oh, thank you for having me.

[Ailsa Chang]

So, a lot of people who've been critical of Trump's tariffs have pointed out these different stated purposes seem at odds with each other. Like, to raise revenue, you have to apply the tariffs long term. Right. So then they're no longer a bargaining chip. And if tariffs are successful in getting companies to stop importing and they boost manufacturing in the U.S. well, then you. You're losing tariff revenue. Right. So how does the Trump administration explain all these contradictions? Do they explain them well?

[Rana Faroohar]

They haven't explained them well. And I think that that's one of the reasons that markets have actually been very jittery in the last few days and weeks. And just to step way back, I mean, this is an experiment that really hasn't been tried in 40, 50 years. So what we're talking about is a big change to the way the American economy and the global economy potentially works. There are lot of reasons for it. I want to even caveat a little bit further before I get into those and say you always have to count his psychology as part of the equation here.

[Ailsa Chang]

Yeah, let's talk about that. Because Trump often talks about his belief that the US has been ripped off by other countries through their tariffs. Is that true?

[Rana Faroohar]

It's hard to say. Ripped off when you look at how successful the US Is and rich compared to really any other country. That said, you could look at the tariff numbers themselves. Average U.S. tariffs on the rest of the world are around 2%. Europe, EU would be about 5%. China would be about 10%. So you could look at those numbers and say, hmm, something's not fair here. Maybe we need to. To rejigger things.

[Ailsa Chang]

Well, Trump describes trade deficits as subsidies that we are paying to other countries. Would you characterize it that way? Subsidies?

[Rana Faroohar]

I wouldn't look at it as subsidies. And I don't get quite as worked up about actual trade balance as Trump and some of his advisors do. But what I would say is that we have kept tariffs very, very low and allowed a lot of countries access to the US Market with the idea that the way you make an economy work is by driving up stock prices and lowering consumer prices. And having a very, very open market has allowed that to happen. But there have also been ways in which domestic industries, minerals, semiconductors, electric vehicles, when you don't support those industries, they can go abroad. And then in times of crisis, you may regret that.

[Ailsa Chang]

Well, economists who studied Trump's tariffs during his first term in office found that the cost of tariffs was almost entirely absorbed by American consumers through higher prices. So is there a way Can Trump balance trade deficits without raising prices for American consumers?

[Rana Faroohar]

Probably not this time around. I would actually caveat what you just said though. And it wasn't just consumers that absorbed the prices, which actually, to be fair, the tariffs in 2018, 2019 didn't cause appreciable inflation because China actually adjusted its own currency to eat some of those costs. That's exactly what the Trump administration is saying is going to happen this time. But that I don't believe because now you're looking at not just one country in one area, you're looking, if the proposals go through at all countries in many different areas. And I think that that's going to be an entirely different scenario. And you might see, you know, reciprocal tariffs, potentially the beginning of a trade war. That's real, that's a real worry.

[Ailsa Chang]

Trump did tell NBC over the weekend that he, quote, couldn't care less if automakers raise their prices. So if cost to consumers aren't his metric for success, then what do you think is his metric for success here?

[Rana Faroohar]

So I think that there are a number of economic nationalists within the administration that see tariffs as a way to re industrialize, as a way to bolster critical areas, not just the economy, but for security. Ships would be one good example. I mean, China's got about 5,500 sea going vessels. America has a little over 180. That's a problem if you're in a war. But you have to do things at home and abroad if you want to actually support industries for economic or political or security reasons. And I don't see the home piece of this yet, I just see the tariff piece of it.

[Ailsa Chang]

Well, let's go back to Trump's psychology. He has acknowledged that Americans frustration with inflation helped him get elected. The stock markets are already reacting negatively to tariffs. So if we start seeing public opinion perhaps turn strongly against tariffs down the road, do you think that could be enough for President Trump to change course?

[Rana Faroohar]

I think he, I think he, of course he cares what people think. I mean, he cares about being perceived as being successful, as a winner. You know, the markets are going down, sad to say, not up. So, so I gotta think at some point, even, you know, despite some of the comments he's made about, you know, we're happy to take some pain, we don't care if prices higher. I think if you see popular opinion really falling, I gotta think that that's gonna matter. If it doesn't, boy, we, we may be in for not just economic turmoil, but some political turmoil too.

[Ailsa Chang]

I think Rana Faroohar is a columnist for the Financial Times and the author of Homecoming the Path to Prosperity in a Post Global World. Thank you so much for joining us today.

[Rana Faroohar]

Thank you for having me.

[Ailsa Chang]

This episode was produced by Matthew Cloutier and Brianna Scott. It was edited by Connor Donovan and Courtney Dorning. Our executive producer is Sammy Yenigan. It's consider this from npr. I'm Elsa Changing.