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.

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)

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)

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)

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).

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

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.