WSJ What’s News
Understanding Trump’s Tariff Strategies as ‘Liberation Day’ Approaches
Sun, 30 Mar 2025
On April 2nd, a new slate of reciprocal U.S. tariffs are expected to take effect. President Trump has championed tariffs, saying they are needed in order to make things fair, to reduce the trade deficit and to bring manufacturing jobs back to the United States. But will his strategies work? Mary E. Lovely, of the Peter son Institute for International Economics, discusses the reasons behind and effectiveness of previous strategies on tariffs to explain how Trump's newest plans may pan out. Alex Ossola hosts. Further Reading Why Trump’s Tariff Strategy Is Getting Riskier, According to Economists How Trump’s Trade War Is Playing Out At Breakneck Speed Trump Previews Reciprocal Tariff Action Set for April 2 Trump’s Tariffs on Canada, Mexico and China: Here’s Where Things Stand Trump’s Tariff Onslaught Is Coming Faster Than His Team Can Carry It Out Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What are the implications of Trump's upcoming tariffs?
Hey, What's News listeners. It's Sunday, March 30th. I'm Alex Osola for The Wall Street Journal. This is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to help explain what's happening in our world. This week, we're talking tariffs.
We're just a few days away from April 2nd, or Liberation Day, as President Trump has called it, when he plans to lay out a slate of reciprocal tariffs. Today, we're digging into how tariffs have been used in the past and whether they achieved their goals. It's no secret that President Trump loves tariffs.
I always say tariffs is the most beautiful word to me in the dictionary.
Chapter 2: Why does Trump advocate for tariffs?
Trump's reasons for imposing tariffs go beyond pure emotion. He considers them to be fair, arguing that the U.S. needs tariffs to match the duties and trade barriers that other countries impose on American products. The president has said that he wants tariffs in order to reduce the trade deficit, that is, to close the gap between how much the U.S. imports and exports.
According to the most recent data available, in January, the U.S. reached a new record for importing more goods than it exports. And he has said that tariffs will boost domestic manufacturing, bringing jobs producing commodities like steel and goods like cell phones back to the U.S. But is that how tariffs have worked in the past?
Mary E. Lovely, a senior fellow at nonprofit nonpartisan think tank the Peterson Institute for International Economics, joins me now to discuss. Mary, I want to start with this idea of reciprocal tariffs. Trump has said that his tariff plans are responding to those placed on the U.S. by other countries.
Chapter 3: What are reciprocal tariffs and how do they function?
What are some of the tariffs or other protective measures that already existed even before Trump came into office?
Well, there clearly are tariffs on U.S. exports, but by and large, they're very low because over the years we have negotiated with other countries for them to lower their tariffs and we to lower ours. Our tariffs are among the lowest in the world, not the lowest in the world, but among the lowest in the world. Although we do have some products that we tax very highly when they're imported.
Chapter 4: What existing protective measures were in place before Trump's tariffs?
For example, the European Union has a 10% tariff on motor vehicles. The U.S. only charges a 2.5% tariff on imported vehicles. So there's a difference there. But there's also a difference in truck tariffs, where the U.S. charges a 25% tariff on trucks. So on some things we're higher, on some things are lower.
Overall, especially with large trading partners like the European Union, on average, it really depends on how you do the average. We're about a percentage point difference. It's not a huge difference. Some of the barriers to our exports are things that reflect also differences in regulation. And President Trump talks about this in terms of non-tariff barriers.
So, for example, Europeans don't want to eat chicken that's been treated with chlorine. And we do. Chicken can be washed in that way in the United States and is considered safer because it kills whatever is on the chicken. So these are barriers that do prevent U.S. exporters from selling those goods into that market.
If we look at the automobile example, right, the automobiles get a 10% tariff in Europe. What is the stated purpose of that tariff?
Chapter 5: How do different countries approach tariffs on motor vehicles?
For the Europeans, the stated purpose is to really offset cost differences that they see between their production onshore inside Europe and production elsewhere. The Europeans have already come forward and saying, we're happy to lower it. On net, Europe is a car exporter. And so they have quite a bit of comparative advantage in automobiles.
Now, there is another thing which might be important here, which is that automakers have to design to the market. So, for example, Ford, we think of Ford as kind of a quintessential American company. But Ford is also in Europe and Ford designs and produces in Europe for Europe. Because the streets are more narrow. People want smaller, less powerful vehicles.
Those vehicles don't find a large market here in the United States. Often we're driving on superhighways.
Trump has said he's looking to create fairness in tariffs. What is his goal with reciprocal tariffs?
So I think the president is tapping into a word, fairness, that people automatically respond to. Fairness is a good thing. But it turns out that fairness is something that needs to be defined. And in this case, he is, I think, really changing the definition of the word reciprocity. Reciprocal and trade negotiations really focused on reciprocal cuts.
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Chapter 6: What is the goal of Trump's reciprocal tariffs?
When you think about it, there's 166 countries in the World Trade Organization. And they don't all have the same domestic constituencies that want to be protected. So for example, in the European Union, it tends to be agricultural interests. U.S., big agricultural exporter.
While we do have high tariffs on certain agricultural products like sugar, we tend to have higher tariffs on very labor-intensive things like apparel. So these differences really reflect differences in... each country's sensitivities. And so when we are negotiating, I may want to increase my exports by $5 billion to your market.
And you say, OK, but I want to increase my exports by $5 billion to yours. And then we can trade across the different sectors. So there was never any understanding that the word reciprocal or fair meant that of the thousands of terrorist lines, they would match across all of these countries.
You mentioned increasing exports. One of the reasons President Trump has given for imposing tariffs is to reduce the trade deficit. How would that work?
There have been uses of tariffs and other instruments regarding U.S. aggregate trade deficit, but they were under a very different system, in particular, a different currency system. So what we see here is a world where the US has floating exchange rates. Many of our partners have floating exchange rates.
What I would say 99% of economists will predict, which is that all else equal, the tariff is going to appreciate the dollar. That will decrease our imports, but it will also decrease our exports. The trade deficit is the difference between exports and imports. That might not change at all.
So most economists would never suggest that tariffs should be used to solve the problem with the trade deficit.
All right. When we come back, we get into another of Trump's reasons for tariffs to increase domestic manufacturing. And Mary tells us what signals she'll be keeping an eye on to see if tariffs are achieving Trump's goals. That's after the break.
Mary, let's talk about this idea of using tariffs to boost domestic manufacturing, that tariffs could move manufacturing jobs from abroad back to the U.S. Have tariffs been used to do this in the past?
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Chapter 7: How could tariffs influence the US trade deficit?
Yes. You have to go way, way back to the late 1800s, the early part of the 1900s. We have lots and lots of evidence, not just from the United States, but from other countries. Tariffs will protect a given industry.
So if you put tariffs, say, on steel, which is a very important sector that we have had protection on for many, many decades, that will in some sense protect the price from falling below a certain amount. And it will allow the industry to basically stabilize. Sometimes there'll be some job growth, but usually not that much.
Oftentimes, protection is put on industries or sectors that are no longer really globally competitive. It may be because a competitor like China rises, or it could just be because the country is shifting to higher value activities. I don't think we've really stared hard in the face what it means to reindustrialize America. What are we talking about?
I think people imagine, oh, we're going to have semiconductor factories or we're going to have, you know, high tech auto sector. They're going to pay 50, 60 dollars an hour for most of the goods that are being taxed right now. The import taxes that President Trump has placed on China, both in his first administration and now 20 percent more just since his inaugural.
those goods are not coming back to the United States. We saw that in the first trade war. Clothing manufacturing went to places like Vietnam. Snapping together your cell phones went to Vietnam or Mexico or Indonesia. It didn't come back to the United States. So kind of broad-based tariffs that President Trump is talking about are being justified as rebuilding America.
Americans really need to come back and say, rebuilding America, how and for whom? Because we have alternatives. We have better jobs that are out there. We really want to be creating jobs for people that have good working conditions and at least a living wage.
And many of these activities simply can't do that unless we have such high tariff walls that you and I will never wear another silk blouse in our life.
We've walked through a bunch of the reasons that President Trump has given for his tariffs. Do you see any other motivation?
One of the things that he has talked about in the past, but hasn't talked about a lot recently, is the need to raise revenue. They're getting ready to pass legislation that will extend the tax cuts that were first enacted in in Trump's first administration.
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