The Art of the Tariff Deal
April 14, 2025 - He stood at the pulpit and shocked the world. A 10% baseline tariff for access to the American market - more for ‘bad actors’ - shaking, in a single swing, the foundations of the global economic system.
The lead-up was as dramatic as the fall-out; pundits declaring free trade over, America’s economy ruined, alliances destroyed. Even the markets tanked - the ‘Trump boom’ ending before it began - as the man of the hour promised to ‘make America wealthy again’ amidst predictions of inflation, recession, and national doom.
But what really happened on Liberation Day - and how has it all played out since?
Trump’s tariffs aren’t about abandoning the global economy so much as redefining it. They’re tacit recognition that the Chinese state-capitalist model is at odds with multilateral liberalism, American market access can be used as effective geopolitical leverage, and the U.S. government can do more to support direct investment.
And they’re more bipartisan than you think.
In 2018, Trump launched his first round of tariffs to the screams of Democrats in Washington and financiers on Wall Street. Less noticed was Biden’s extension and, in some cases, expansion of these tariffs when they were set to expire last May.
In China’s case, Biden not only kept Trump’s original 20% tariff but rolled out additional, targeted tariffs of 7.5-100% on Chinese electric cars, solar panels, lithium batteries, semiconductors, and medical supplies — even as American consumers buckled under inflation. Far from the derision that Trump received six years earlier, most members of Congress applauded Biden’s economic shots against China. Many called for him to go further.
Washington’s new consensus is that America has gained as much as it can from the multilateral free trade regime it founded. Free trade, once the province of the GOP, is now punished by both sides of the aisle. The reason, in short, is that Chinese state subsidies broke the multilateral trading system.
China Broke Global Free Trade
Upon joining the WTO, China unleashed history’s most talented technocrats on developing ‘target sectors,’ with trillions of dollars to spend on subsidies. By taking on much of the development costs, Chinese state-supported companies could afford to scale at light-speed - effectively using their excess production from overflowing state investments to lower marginal costs en masse. In short, they successfully undercut the entire global market’s product pricing one ‘target sector’ at a time.
This happened in such a wide range of manufactured goods - from solar panels and drones to electric cars and medical devices - that China now represents 30% of the world’s total manufacturing capacity.
Beyond encouraging investment through subsidies - China facilitated state-directed intellectual property capture of global companies’ sensitive research and technologies. In 2024 alone, China was the subject of 198 trade investigation cases at the WTO- nearly half of all cases lodged that year - ranging from illegal subsidies and anti-dumping practices to intellectual property rights protection and enforcement. More than half of these cases were initiated by the emerging economies that China claims to champion, illustrating how China manipulates not just Western economies but the entire multi-lateral trading system to its benefit.
China’s Tightening Belt and Lengthening Road
Just as effective as China’s manufacturing investments are China’s efforts to build infrastructure aimed at unlocking global markets for their epic over-supply of goods. China’s $1T Belt and Road Initiative has not just enabled cheap and easy foreign market access for their state-supported companies. It’s also won influence within foreign governments and control over strategic logistics infrastructure, from Panama’s canal to Sri Lanka’s deep-water port.
Just as effectively, the BRI has given China access to vital natural resources - including 80% of the world’s rare earth minerals - many of which American companies cannot operate without. America has ensured freedom of navigation for decades through its powerful Navy, Air Force, and system of military bases around the world. With 90% of the world’s shipbuilding capacity, and trillions spent on rapid military expansion and modernization, China may soon be able to challenge American maritime supremacy - around the world, yes, but, most critically, within the South and East China Seas.
About 30% of the world’s trade passes through the South and East China Seas - bodies of water that include Taiwan, as well as the ‘first island chain’ comprised of Filipino, Japanese, Indonesian, Malaysian islands and the country of Brunei. Though access control of these seas is a major risk to the sovereignty of the countries above, as well as the freedom of navigation principle that’s underpinned our global economic system, it’s an existential risk for the disputed territory of Taiwan. If China can control these bodies of water, not only is freedom of navigation at risk; they could effectively consolidate their sphere of absolute influence across Southeast and East Asia, tearing away the independence of one of the world’s most dynamic and diverse regions in the process.
This, more than tariffs, is a greater risk to the global multilateralism that Western liberals have come to love.
One World, Two Trading Systems
While these tariffs were bipartisan, the implementation of tariffs against allies was not. I’d argue that the most effective use for these tariffs is to gain geopolitical leverage for American gain, specifically, to decouple the Chinese and American trading systems, while potentially bringing back American manufacturing capacity in specific target sectors.
Which brings us to the realpolitik of it all: How tariffs - or, weaponizing access to the world’s richest market - became powerful geopolitical leverage to spur governments into action. Already, we’ve seen this in Mexico - with the deployment of 10,000 armed forces to the border, the long-fought extradition of 29 narco bosses, and ramped-up local crackdowns on cartels - all to help Trump achieve his goal of eliminating drug trafficking and illegal immigration.
The realpolitik angle tracks with Trump’s general theme of using threats - economic and otherwise - to quickly induce needle-moving action among allies. Concurrent to February’s North American tariff threats were wavering NATO and Ukrainian commitments in Europe. Within two months, the threat of lessened American support spurred Germany to pass a record-breaking $1T defense and infrastructure package - so big that it required a constitutional amendment, the EU to announce some $865B in European defense financing, and Ukraine to enter the signing stages of a minerals deal worth a rumored $500B+ to American investors. For better and worse, by placing believable threats on the table, Trump gained the concessions his voters wanted.
In Latin America, threatening military force against Panama brought about the pending sale of $23B in strategic Panama Canal ports from Hong Kong-based CK Hutchison to BlackRock, as well as Panama’s withdrawal from China’s Belt & Road Initiative for foreign infrastructure investment. Yet even less noticed was the 60% tariff threat on any goods that pass through Peru’s new megaport - Chancay - built by China-based COSCO. Just the threat of such tariffs has implications on the use of Chinese infrastructure for U.S.-bound shipments moving forward. All of which spotlights China’s realpolitik challenge beneath the seismic shifts in American trade policy today.
The emergence of alternative trading systems, outside of Western multilateralism, is, inevitably, where this road of two-tier infrastructure access leads; be it CRINK, BRICK, or something else, still to be seen. The big question, however, remains: does that make conflict inevitable? Can competing global trading systems peacefully co-exist in the world? Or are we in for another Cold War that - in the Baltics, North Pole, and first island chain - may already be starting to happen.
The Art of the Tariff Deal
The impact of tariffs has been blunted by significant tensions within the administration itself. Peter Navarro has characterized them as "not a negotiation" but "a national emergency," while Trump has repeatedly signaled openness to talks with trading partners offering "something phenomenal." This mixed messaging creates uncertainty for markets and trading partners alike about America's ultimate objectives.
There’s been conjecture that, amid short-term recessionary pain, this will still spur domestic manufacturing investment. A hope most famously illustrated by blockbuster deals - from TSMC, Nvidia, and Apple, among others - totaling $2T since January; though both the immediacy and effectiveness of these investments is called into question by high costs, like expensive state and local regulations (remember the Foxconn flop?), and America’s skilled labor shortage. Not to mention that most businesses claim to be waiting to see how long certain tariffs last before actually investing domestically.
The competing framings – as revenue generators, job creators, or geopolitical leverage – reflect a deeper ambiguity about whether the primary goal is economic reconstruction or strategic positioning. But maybe that’s been the point all along; to cause enough confusion, create enough ambiguity, that Trump can get whatever deal he wants, whenever he wants it. Whether that’s Mexican border enforcement, European defense-sharing, Panama Canal ports or domestic investment - Trump’s foreign policy achievements are varied and undeniable. One can only wonder if the confusion he causes is a big driver why.