The tariff gambit: Trump's long game and America's trade reckoning

On April 2, 2025, Donald Trump stood in the White House Rose Garden, surrounded by a group of advisors, and declared what he termed "Liberation Day.” With a stroke of his pen, he imposed a sweeping range of tariffs -10 percent on all imports, with higher rates of 34 percent on China, 24 percent on Japan, and 25 percent on Canada and Mexico (later reduced for USMCA-compliant goods). The announcement, presented as a national economic emergency under the International Emergency Economic Powers Act, sent shockwaves through global markets. The S&P 500 dropped nearly 5 percent the following day, its worst decline since June 2020, while gold surged to $3,100 an ounce amid inflation concerns. Economists, business leaders, and foreign allies rushed to analyze the consequences, while Trump, ever the showman, celebrated it as the culmination of a promise he had been making for four decades.

Trump’s fixation on tariffs isn’t new. It dates back to the 1980s when he was a brash real estate mogul criticizing Japan’s trade practices in interviews and op-eds. By June 16, 2015, when he descended the Trump Tower escalator to announce his presidential bid, tariffs and trade deficits were already his rallying cry. "China has our jobs, and Mexico has our jobs," he declared during his announcement speech, promising to reverse decades of what he viewed as America’s economic surrender. Now, nearly ten years later, with the U.S. trade deficit with China reaching a staggering $295.4 billion in 2024 under the Biden administration — an all-time high — Trump’s tariff crusade feels less like a campaign stunt and more like a personal vendetta turned policy cornerstone.

The roots of the deficit: NAFTA and Clinton’s legacy

To understand Trump’s fervor, one must rewind to the 1990s, when the North American Free Trade Agreement (NAFTA) reshaped the U.S. economy. Signed by President Bill Clinton on December 8, 1993, NAFTA was heralded as a bipartisan triumph, with Clinton flanked by luminaries like George H.W. Bush and Bob Dole. "We’re going to create hundreds of thousands of jobs," Clinton proclaimed, envisioning a borderless North American market.

Since the 1990s, the U.S. has lost a significant number of manufacturing jobs — decreasing from 16.8 million in 1993 to 12.4 million by 2016, a 26 percent decline. The auto sector experienced the loss of 350,000 jobs as production moved to Mexico, where employment surged from 120,000 to 550,000. The textile industry fared worse, witnessing nearly a 90 percent decline in employment as China and Mexico filled U.S. shelves. Clinton’s free-trade vision, while stimulating GDP, left behind a landscape of shuttered factories, a reality that Trump capitalized on. By 2025, the White House claims that 5 million manufacturing jobs have disappeared since 1997, a figure that, while debated, supports Trump’s narrative of betrayal by globalist elites.

Trump’s case: A reckoning with China

Trump’s tariff salvo is fundamentally a response to this history and to China’s significant trade deficit with the U.S., which rose to $295.4 billion in 2024. This imbalance, overshadowing the $6 billion deficit of 1985, illustrates China’s emergence as a manufacturing powerhouse, driven by state subsidies, low wages, and, until recently, currency manipulation. Trump’s "reciprocal tariff" formula — calculating the deficit divided by imports and then halving it — produced China’s 34 percent rate, a blunt tool to penalize what he refers to as "cheaters." His advisors, including Peter Navarro, contend that this will bring jobs back to America, reflecting Trump’s long-standing concern that the country’s openness has been taken advantage of.

The benefits of this approach resonate with Trump’s base. Tariffs could generate $100 billion in revenue, according to White House estimates, helping to offset a federal deficit that is ballooning toward $1.8 trillion. Ford’s Jim Farley may warn of a "hole" in U.S. industry, but Trump responds that 50 percent of cars sold in 2024 were imported — why not manufacture them here? His first-term tariffs on steel and aluminum, after all, spurred some domestic growth, and the USMCA, which he pushed through to replace NAFTA, strengthened rules to favor American workers. For Trump, the trade deficit with China isn’t just statistics — it represents a symbol of lost sovereignty, a grievance he’s harbored since the Reagan era.

Mitt Romney’s presidential campaigns provide an interesting parallel. In 2008, he scarcely addressed China or tariffs, concentrating instead on domestic issues during the financial crisis. By 2012, confronted with a struggling industrial heartland, he made a significant shift. "I will crack down on cheaters like China," he proclaimed, promising to label Beijing a currency manipulator on the first day and impose tariffs. This stance was tougher than his free-trade inclinations as a Bain Capital executive, indicating political expediency. Trump, however, has surpassed Romney’s rhetoric, transforming a campaign promise into a second-term crusade, driven by the conviction that China’s $295.4 billion deficit in 2024 supports his argument.

The drawbacks: Friedman’s ghost and modern warnings

Yet, Trump’s tariff triumph is accompanied by a chorus of dissent, reflecting the free-market principles of Milton Friedman. The Nobel laureate, a giant of the Chicago School, regarded tariffs as an economic sin. "They raise prices for consumers and waste our resources," he wrote in 1993, arguing that free trade benefits everyone by allowing nations to specialize. In "The Case for Free Trade," he debunked protectionist myths — exchange rates, not tariffs, balance wage disparities, he argued — and advocated for unilateral free trade, a radical idea that Trump scorns. Friedman’s influence is significant: tariffs, he would contend, would drive iPhone prices to $2,300, according to Rosenblatt Securities, impacting consumers the most.

Contemporary economists amplify this critique. The Budget Lab at Yale predicts a one-point decrease in GDP by 2025, with unemployment rising from 4.2 to 4.7 percent, potentially costing millions of jobs, according to Harry Holzer of Brookings. Nomura Securities forecasts a modest 0.6 percent GDP growth, with inflation approaching 4.7 percent. Reuters warns of a global trade war, with JPMorgan estimating a 60 percent chance of recession by year-end. Lawrence Summers, former Treasury Secretary under Clinton, described Trump’s plan as "dangerous and damaging," likening it to "creationism in biology." The IMF’s Kristalina Georgieva anticipates a decline in global growth from 3.3 percent, while Fitch’s Olu Sonola points out that the U.S. tariff rate — now at 22 percent — matches levels seen in 1910, risking a Smoot- Hawley repeat.

Businesses already feel the pinch. Stellantis has shuttered a Windsor plant for two weeks, idling 3,600 workers, as Canada retaliates with 25 percent tariffs. The Beer Institute is concerned about a 25 percent tariff on aluminum cans, which threatens a $7.5 billion industry. The OECD projects that U.S. growth will slide to 1.6 percent in 2026, a stark drop from 2.8 percent in 2024. Critics argue that Trump’s formula misreads trade deficits — driven more by U.S. consumption than by foreign barriers, according to the U.S. Chamber of Commerce — inviting chaos rather than clarity.

The verdict: A high-stakes bet

Trump’s tariff gambit is a high-wire act, balancing visceral appeal with economic peril. On one side, it’s a populist outcry against a $295.4 billion Chinese deficit, a 40-year obsession now transformed into policy. It promises jobs, revenue, and a manufacturing renaissance, tapping into genuine pain — those 5 million jobs lost since 1997 and the devastated towns NAFTA left behind. Romney’s 2012 pivot demonstrated that this chord resonates; Trump’s just playing it louder. Yet, Friedman’s logic and modern forecasts warn of a boomerang effect — higher prices, global retaliation, and a recessionary spiral that could overshadow any gains.

The trade deficit with China, peaking in 2024, serves as Trump’s Exhibit A, yet his solution risks fracturing a world economy he claims to save. For every factory revived, a consumer pays more; for every dollar in tariffs, a market trembles. As the Nikkei, FTSE, and S&P reel, Trump’s "Liberation Day" may liberate America from one burden only to bind it to another. Four decades in the making, this is his moment — but whether it ends in triumph or tragedy depends on a ledger still unwritten.