Why Tariffs Haven’t Balanced Out Global Trade

Summary

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WSJ What’s News (Feb 23, 2026): Why Tariffs Haven’t Balanced Out Global Trade

Episode Overview

This episode of the Wall Street Journal’s "What’s News" explores why President Trump’s signature policy of expanding tariffs has so far failed to achieve its goal of rebalancing global trade and shrinking the U.S. trade deficit. Host Daniel Bach is joined by global economics correspondent Tom Fairless, who walks listeners through the real-world impacts and unintended consequences of the current tariff regime. The episode also touches briefly on breaking news in Mexico and Iran, and on developments in the evolving ETF market.

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Key Discussion Points & Insights

Major International Developments (00:34–04:10)

• Violence in Mexico: After Mexican authorities killed a powerful cartel boss, Nemesio “Mencho” Oseguera, violence erupted across the country, notably shutting down much of Guadalajara and prompting warnings to Americans. (00:34–02:34)
• Protests in Iran: A "second wave of popular anger," particularly among students in Tehran, is pushing back against state repression, with anti-government protests reigniting but not matching earlier nationwide unrest. (02:34–03:09)
• US–Iran Negotiations: The US, while building military presence in the region, grows frustrated with stalled nuclear and missile negotiations, and the Trump administration increases pressure diplomatically and economically. (03:09–04:10)
• Other US News: A security breach at Mar-a-Lago resulted in a fatal shooting; a major winter storm disrupts travel on the East Coast. (04:10–05:02)

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Why Tariffs Aren’t Working As Intended (05:27–09:19)

Setting the Stage (05:27–06:09)

• President Trump announces a global tariff hike from 10 to 15%, after a Supreme Court ruling changes the legality framework for existing tariffs.
• Ongoing uncertainty among global firms regarding costs, refunds, and compliance.

Core Problem: Trade Deficit Persists (06:09–06:52)

• Tom Fairless’s Insight:
  • The expected reduction in the US trade deficit hasn’t materialized.
  • Exporters rush to beat tariff deadlines, causing volatility, but the rolling 12-month deficit remains essentially unchanged.
  • “There are big rushes in export numbers as exporters try to get ahead of tariffs ... but if you look at the 12 month rolling average, the US trade deficit doesn't seem to have changed very much.” (Tom Fairless, 06:23)
  • 2025 saw a record $1.24 trillion US trade deficit in goods.

Why Have Tariffs Been Ineffective? (06:52–07:28)

• Global Responses Counteract US Policy:
  • Major surplus countries—China, Germany, South Korea, Japan—have doubled down on exports rather than shifting toward local demand.
  • Increased government support and subsidies to manufacturing/export sectors.
  • “Rather than try and restructure ... they've doubled down on exports. They've funneled large amounts of government money into the manufacturing and export sectors to keep the whole thing going, to jump over the tariff wall.” (Tom Fairless, 06:58)

Structural Challenges in Changing Global Trade (07:28–07:59)

• Economies are deeply invested in their trade models:
  • Germany’s export culture is seen as a matter of national strength and pride.
  • US benefits from global capital inflows that help lower interest rates and fuel consumption.
  • “It shows how difficult it is to change the structure of your economy. The export model is very popular in Germany ... the US benefits from the capital inflows... which help to boost consumption in the U.S.” (Tom Fairless, 07:35)

Is the US Trade Deficit Necessarily Bad? What Might Work? (07:59–09:14)

• Not Always a Problem:
  • Some trade deficit is tied to high US investment, particularly in AI and technology.
  • Large US fiscal deficits spur imports and keep the overall trade balance negative.
• Alternative Fixes:
  • Economists argue that if the US reduced government spending (fiscal deficits), trade deficits would shrink naturally—no need for others to change behaviors.
  • However, the US is not blameless:
    • The IMF recently criticized China for using industrial policy to fuel exports, corroborating some US concerns.
  • Quote:
    • “The US can do a lot to reduce its trade deficit just by reducing government spending.” (Tom Fairless, 08:57)

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Memorable Moments & Notable Quotes

• Why policy alone doesn’t work:

  • “Rather than try and restructure their own economies to rely more on local demand and less on exports, they've doubled down on exports.”
    — Tom Fairless (00:47; restated 06:58)

• On the entrenched German model:

  • “The export model is very popular in Germany ... and their large surpluses, they see it as economic strength that they want to retain. To try and change that is very difficult.”
    — Tom Fairless (07:34)

• On the US role:

  • “The US benefits from the capital inflows from the rest of the world, which lower interest rates and help to boost consumption in the U.S.”
    — Tom Fairless (07:54)

• Alternative viewpoint:

  • “A lot of economists will say regardless of that, the US can do a lot to reduce its trade deficit just by reducing government spending.”
    — Tom Fairless (08:57)

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Other Market News: ETF Evolution (09:26–10:53)

• ETF Market Gamification:
  • ETFs, traditionally low-cost and passive, are being joined by riskier actively managed and leveraged products pitched for excitement and higher returns.
  • “You're seeing the ETF market become kind of the latest example of the gamification of everything in the US economy.” — Jack Pitcher (09:57)
  • Example: Proshares Ultra Silver ETF soared with silver but lost 60% in one day when prices reversed (10:53).

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Key Timestamps

• 00:34 – Major headlines: Mexico cartel violence, Iran protests, US news
• 05:27 – Introduction to the tariff discussion and latest policy changes
• 06:09 – Why the US trade deficit remains stubbornly high
• 06:52 – How exporting nations are offsetting tariffs
• 07:28 – Structural challenges of rewiring global trade
• 07:59 – Are trade deficits actually problematic?
• 09:14 – Segment wrap; main takeaways on tariffs
• 09:26 – ETF evolution: rise of actively managed and leveraged funds

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Conclusion

While tariffs were meant to reshape America’s global trade position, structural factors and strategic reactions by major exporters have left the US trade deficit largely untouched. The episode underscores the complexity of the global economy, the limits of tariffs as a blunt tool, and ongoing debate about the right policy mix for the US and its trading partners.

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Transcript

[CLA Announcer]

At cla, we're in your corner and on it. We coach tax strategies and little league first base. We help you adopt AI data tools and we adopt Rescue's name, buddy. We walk your factory floor and jog the local 5k, though sometimes we walk that too. Wherever you're coming from, we're right there with you. Wherever you're going, we'll get you there. CLA CPAs consultants and advisors. Learn [e-mail] with you.

[Daniel Bach]

Violence in Mexico after authorities hunt and kill a cartel boss. Plus a second wave of protest builds in Iran. And as President Trump doubles down on tariffs, we'll hear why his signature policy isn't shrinking the trade deficit.

[Tom Fairless]

The big exporting economies like China, Germany, South Korea, Japan have been moving in the opposite direction. So rather than try and restructure their own economies to rely more on local demand and less on exports, they've done double down on exports.

[Daniel Bach]

It's Monday, February 23rd. I'm Daniel Bach for the Wall Street Journal, filling in for Luke Vargas. And here's the AM edition of what's news, the top headlines and business stories moving your world today. We begin in Mexico, where the killing of the country's most powerful drug kingpin in a raid by the Mexican military has sparked a wave of violence across the country. The US had placed a $15 million bounty on Nemesio Mencho Oseguera, a former police officer who was the leader of the Jalisco New Generation cartel. His killing marks the most significant operation yet in Mexico's recent crackdown on cartels, which comes as the US has pressured its neighbor to allow the American military to get involved in the fight against drug gangs. Mexico has pushed back on that, but has boosted security and intelligence cooperation. Oseguera controlled vast swaths of territory and was known for sophisticated parameter military tactics. His gunmen responded to his death by burning cars and trucks and blocking roads in Guadalajara, forcing a near shutdown of Mexico's second largest city yesterday. The US Embassy in Mexico is warning American citizens to seek shelter and minimize unnecessary movement in several Mexican states. Turning now to Iran, where a second wave of popular anger is building with students holding anti government rallies over the weekend. According to Journal correspondent Jared Malson, the unrest marks the most significant show of defiance last month's deadly protests.

[Jared Malson]

This weekend you had students on university campuses, especially in Tehran, coming out to protest, chanting for the fall of the regime and also chanting to remember the people who were killed in the crackdown that took place in January in which thousands of people were killed by government forces. We're not seeing evidence that this is turning into a national challenge to the regime, as we saw in January, but it is significant that people are again defying the regime by protesting at all.

[Daniel Bach]

Meanwhile, the US Continues to amass forces in the region, and President Trump finds himself at a crossroads.

[Jared Malson]

So this week, the US has another round of negotiations with Iran over its nuclear program and potentially its missile program. However, over the weekend, Trump's special envoy for the Middle East, Steve Witkoff, who is leading the talks for the American side, said that the president is increasingly frustrated, potentially with the fact that the Iranians haven't capitulated in the face of military pressure. And there is a sense that it's increasingly a question of when and not if there will be American military strikes on Iran. That said, the administration has said repeatedly that it wants a deal and the negotiations are continuing for now. And it's clear that the administration wants to hold those negotiations when it is applying an immense amount of pressure on Iran, both militarily and economically through sanctions.

[Daniel Bach]

Back in the US A man who tried to breach the secure perimeter at President Trump's Mar a Lago home was shot and killed by U.S. officers yesterday. The White House identified the man as Austin Tucker Martin. Authorities said he was in his 20s and had a shotgun and a gasoline canister with him. The president and the first lady were in Washington this weekend, and more than 9,000 flights scheduled for yesterday and today have been canceled due to a major winter storm hitting the US east coast, with Boston and New York airports affected the most, According to the National Weather Service, very heavy snowfall and strong winds will continue to batter the east coast today. Coming up, tariff uncertainty is back. And while President Trump shows no sign of giving up on import duties, we'll hear why they've so far failed to rebalance global trade. That story after the break.

[CLA Announcer]

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[Daniel Bach]

Uncertainty is hanging over global markets. To start the week, stock futures fell early today, while Asian and European stocks were mixed. That's after President Trump said over the weekend that his global tariff would rise from 10 to 15%, aimed at replacing many of the duties ruled illegal by the Supreme Court. The ruling on Friday has left businesses scrambling to figure out whether they can get refunded and whether the new duties could prove costlier. One thing is clear though the President seems committed to tariffs as a tool for remaking global trade. But global economics correspondent Tom Fairless reports that so far the levies haven't had the intended effect, and he joins me here now. Tom, so what has been the impact to date?

[Tom Fairless]

Yeah, so one of the rationales for tariffs and one of the central rationales that Trump administration gave is to rebalance global trade and to reduce the large trade deficits that the US has been running for years. That doesn't seem to have happened. There are big rushes in export numbers as exporters try to get ahead of tariffs when the rates rise. But if you look at the 12 month rolling average, the US trade deficit doesn't seem to have changed very much. And some data last week actually showed the US ran a record trade deficit in goods, $1.24 trillion last year. So in terms of that goal, it doesn't seem to have had the desired effects so far.

[Daniel Bach]

So why is it that tariffs aren't really moving the needle when it comes to the trade imbalances?

[Tom Fairless]

I think one reason that that isn't happening is that the counterparts of that deficit globally, the big exporting economies like China, Germany, South Korea, Japan, have been moving in the opposite direction. So rather than try and restructure their own economies to rely more on local demand and less on exp, they've doubled down on exports. They've funneled large amounts of government money into the manufacturing and export sectors to keep the whole thing going, to jump over the tariff wall.

[Daniel Bach]

And what does this tell us about the way different economies work and the difficulty in rewiring global trade?

[Tom Fairless]

One thing it shows is how difficult it is to change the structure of your economy. The export model is very popular in Germany. Their sort of export prowess and their large surpluses, they see it as economic strength that they want to retain. To try and change that is very difficult. Equally, I think the US Benefits from the capital inflows from the rest of the world, which lower interest rates and help to boost consumption in the U.S.

[Daniel Bach]

okay, Tom, so if the U.S. trade deficit persists as it has so far despite Trump's efforts, is it necessarily a bad thing? And if tariffs don't work, are there other ways of shrinking it?

[Tom Fairless]

So it's not necessarily a bad thing. It might even be beneficial. Some of that is heavy spending on AI and AI investments. One reason that economists say that the trade and deficit is so large is because of the large fiscal deficits and that some economists say, well, this is something the US can solve itself. It doesn't need other countries to do much. The US Just needs to spend less and reduce its budget, and that'll automatically rebalance because there'll be less money for imports and so trade will rebalance that way. I think it is also true that other economies are aggravating these imbalances. And the IMF came out last week with a very rare criticism of China's trading policy, where it really was saying that China was using industrial policies and inflating these to support its exports and its current account balance and was quite critical about that, which sort of confirms that maybe Trump had a point on that. But a lot of economists will say regardless of that, the US can do a lot to reduce its trade deficit just by reducing government spending.

[Daniel Bach]

That is global economics correspondent Tom Fairless in Frankfurt. Tom, thank you so much for this.

[Tom Fairless]

Thanks so much, Daniel.

[Daniel Bach]

And in other news from the markets, exchange traded funds became America's dominant investment vehicle by being cheap, boring and pretty safe. These are often passive funds that track things like the S&P 500. But with trillions of dollars flowing into ETFs, some investment firms are taking the opposite approach, selling new exot and riskier offerings. Journal markets reporter Jack Pitcher says nearly 1,000 actively managed ETFs were launched in the past year, many of them with higher fees to boot.

[Jack Pitcher]

In the current environment where we've seen online gambling get really popular, prediction markets get popular, you're seeing the ETF market become kind of the latest example of the gamification of everything in the US Economy. And we're seeing smaller managers that people haven't heard of come in and they're going with sort of eye catching products, products they're hoping will generate headlines, generate attention, and a lot of times those are really risky. So recently we've seen leveraged funds on a single stock. The idea there is the fund is going to use derivatives to try and double or triple the daily return of a stock. New regulations have made it okay for there to be cryptocurrency ETFs. Once an ETF reaches a certain asset threshold, these managers, they make their money by charging a small fee on total assets. If you get lucky, you have a fund become large or extremely successful, there's an opportunity to make quite a bit of money on that.

[Daniel Bach]

Management aside, at the times in the ETF market, investors in the Proshares Ultra Silver etf, which aims to double the daily move of silver prices, went on a wild ride after the precious metal hit record highs recently. But when silver prices reversed course and sold off. The fund crashed 60% in a single day. Even so, the fund still sits above a billion dollars in assets. And that's it for what's news for this Monday morning. Today's show was produced by Hattie Moyer. Our supervising producer was Christina Rocca. And I'm Daniel Bach for the Wall Street Journal. We'll be back tonight with a new show.

[Tom Fairless]

Until then, thanks for listening. Data is everywhere. But is it ready for consumption? Morningstar developed the language of global investment data so you have the right ingredients

[Daniel Bach]

to help you shine.

[Tom Fairless]

Morningstar, where data speaks.