Trump uses tariffs to reshape American economy and security

Source: The post Trump uses tariffs to reshape American economy and security has been created, based on the article “Trumponomics deserves to be taken seriously” published in “The Hindu” on 18 April 2025. Trump uses tariffs to reshape American economy and security.

UPSC Syllabus Topic: GS Paper2-International Relations-Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Context: U.S. President Donald Trump’s aggressive tariff policy marks the beginning of a global trade war not seen since World War II. While he has paused tariffs for most countries except China, he remains committed to reshaping the U.S. economy. His economic agenda, called “Trumponomics,” includes four pillars: tariffs, tax cuts, deregulation, and energy expansion.

Key Propositions of Trumponomics

1. Reviving U.S. Manufacturing: Trumponomics seeks to bring back manufacturing jobs lost due to globalization and offshoring.

• Between 2000 and 2011, around 2 million jobs were lost (Stephen Miran).
• Robert Lighthizer estimates a loss of 5 million jobs from 2000 to 2009.
  • This job loss has devastated industrial communities, leading to poverty, crime, and drug abuse. Manufacturing remains a key path to high-wage employment for most Americans.

2. National Security: Trump argues that manufacturing is essential for national defence. The U.S. should not depend on imports for vital materials like steel, aluminium, and semiconductors. He says, “If you don’t have steel, you don’t have a country.”
3. Unfair Trade Practices: Trumponomics rejects trade with countries like China, which use subsidies, slave labour, and technology theft to give their firms an unfair advantage. These practices harm U.S. firms that follow market rules.
4. Controlling Trade Deficits: The U.S. runs a trade deficit of $500 billion to $1 trillion annually. This persists because the U.S. dollar is a global reserve currency, keeping it overvalued. A strong dollar makes imports cheaper and exports more expensive, worsening the deficit.

Use of Tariffs to Achieve Economic Goals

1. Tariffs as a Strategic Tool: Tariffs raise import costs and discourage foreign goods. This helps reduce the trade deficit and promotes domestic manufacturing. They also attract foreign and American companies to shift operations to the U.S.
2. Economic Efficiency vs Strategic Goals: Critics say tariffs hurt efficiency and cause inflation. Trumponomics counters that tariffs reduce imports, causing the dollar to strengthen. If the currency offset is perfect—say, a 10% tariff balanced by a 10% appreciation in the dollar—then import prices remain stable for consumers. Exporters, whose currencies weaken, earn less in return.
3. Cost to Consumers: If the currency offset is incomplete, U.S. consumers may see higher prices. Still, Stephen Miran estimates the inflation impact at just 0.3 to 0.6 percentage points, which is considered manageable.
4. Efficiency Gains through Pressure: As input costs rise, American manufacturers are pushed to innovate and cut costs. This pressure is leading to relocation of production to the U.S., boosting output and economic self-reliance.

The Other Three Pillars of Trumponomics

1. Tax Cuts: Tariff revenues will help fund tax cuts, easing the burden of higher import costs on businesses.
2. Deregulation: Simplifying regulations will reduce compliance and operational costs for U.S. companies.
3. Energy Expansion: More drilling will lower oil prices and help offset inflation from tariffs.

A New Economic Model

Trumponomics challenges the idea that efficiency alone should guide policy. Trump prioritizes jobs, national security, and self-reliance. Despite criticism, he remains firm in pursuing his “Make America Great Again” vision, regardless of short-term global effects.

Question for practice:

Examine how Trumponomics uses tariffs as a strategic tool to achieve economic and national security goals.