The Forgotten Economics Behind Trump’s Tariffs
Carney (who I've never seen be wrong) & Marlow...for the win
April 14, 2025
The textbooks warned us. They said if a country tried to impose tariffs, other countries would retaliate. A trade war would break out. Prices would rise, trade would collapse, and everyone would lose.
But something strange happened.
Donald Trump imposed tariffs, and the world adjusted. There was no collapse. The retaliation never came, except from China. Countries didn’t escalate. They negotiated. They offered concessions. Many simply accepted the new baseline. And some even reduced their own tariffs in response.
The globalists were wrong. The classical economists were right. And Trump’s tariffs are proving it.
President Donald Trump during an executive order signing in the Oval Office of the White House on April 9, 2025. (Chris Kleponis/CNP/Bloomberg via Getty Images)
To understand what’s happening, let’s return to the theory we explored in Part One of this series—the optimum tariff. The logic was simple: when a country with market power imposes a moderate tariff, it buys imports at a lower world price and shifts the terms of trade in its favor. That country ends up better off, so long as others don’t retaliate in kind.
This theory had always been dismissed as “too theoretical.” The assumption was that retaliation would be automatic and destructive, making any gain short-lived.
But the real world doesn’t follow academic assumptions. It follows power. And America has it.
Trump’s Baseline Tariff: A Modern Optimum Tariff
Trump’s proposal of a 10 percent universal tariff on all imports is a textbook example of an optimum tariff—only with more strategic elegance. Unlike targeted tariffs that might hit one country or sector, a universal tariff reduces distortion and raises revenue while pushing down global prices across a wide range of goods. It isn’t aimed at retaliation. It’s aimed at realigning the terms of trade—to ensure the U.S. no longer subsidizes global production at the expense of its own industries.
And it’s working precisely because America is the world’s buyer of last resort. We are the final destination for the world’s exports. Every producer, every exporter, every multinational needs access to the U.S. market. That’s why a 10 percent tariff doesn’t just raise money—it reshapes global incentives.
When the Trump administration proposed this tariff, most countries didn’t threaten retaliation. They opened trade talks. They looked for exemptions. They sought deals. In other words, they accepted America’s leverage.
That’s what the optimum tariff theory predicted. That’s exactly what is playing out.
Reciprocal Tariffs: A Targeted Application of Leverage
Then there’s the reciprocal tariff formula—another Trump innovation that makes the theory even more enforceable. If a foreign country imposes a 25 percent tariff on American goods, we match it with a 25 percent tariff on theirs. Simple. Fair. Rational.
But underneath its simplicity is a deep strategic logic. The reciprocal tariff isn’t just a tit-for-tat move—it’s a threat with teeth. It tells foreign nations: if you want access to our market, you must grant us equal access to yours.
That’s not protectionism. That’s economic justice and economic strategy. And it works.
What we’ve seen over the past several years is not a spiraling trade war, but a gradual realignment of global trading rules in favor of the United States. Countries that once relied on high tariffs to protect their markets—from Europe to India to South Korea—are coming to the table. They’re negotiating. They’re reforming. Why? Because they know they need the American consumer more than America needs their exports.
The assumption that retaliation would cancel out the benefits of tariffs has proven false. And this isn’t a fluke—it’s a reflection of the structure of global trade. The U.S. is uniquely positioned to benefit from the optimum tariff because the world is not symmetrical. We buy more than we sell. We are the hub, not a spoke.
What the Economists Missed
The classical theorists who developed optimum tariff theory understood this in theory but feared it in practice. They worried that even modest tariffs would provoke tit-for-tat retaliation, leading to declining trade and falling incomes.
But they were writing in a world of relatively equal powers. That’s not today’s world.
Today, most nations are not in a position to retaliate effectively. Many of them depend on trade surpluses with the U.S. to keep their own economies afloat. Retaliation would be an act of self-sabotage. The only country that responded with real counter-tariffs was China—and the result was not American collapse, but the decoupling of supply chains, the reshoring of industry, and a rebirth of American manufacturing power.
The Political Economy of Strength
Tariffs are not just about prices. They are about bargaining power. And when used wisely, they are also about rebuilding national strength.
A tariff does not need to raise prices for consumers if the world lowers its prices to retain access to the U.S. market. A tariff does not need to reduce trade if it leads to better deals. And a tariff does not need to spark inflation if foreign exporters eat the margin—as they often do.
But what a tariff does do—when designed properly—is restore industrial capacity, support good-paying jobs, and tilt global economic flows back toward the American worker.
This is the real meaning of optimum tariff theory: not an academic formula, but a recognition that trade is not neutral. It is power. It is politics. And if we refuse to use our leverage, someone else will.
The Global Realignment Has Begun
What we are witnessing under Trump’s trade policy is not isolationism. It’s a restructuring of the rules of globalization.
The 10 percent tariff isn’t just a number—it’s a signal. It tells the world: America will no longer offer unconditional access to its market. Trade must now be fair, reciprocal, and beneficial to the nation as a whole. The old free trade dogma—built on the myth of mutual gain—is giving way to a harder, smarter economics grounded in real-world leverage.
The retaliation never came because most countries couldn’t afford to bring it. And in their silence, we hear the quiet sound of an economic order being reset.
Call it protectionism if you like. But the proper name is older and more precise.
It’s called the optimum tariff. And at long last, it’s being put to work for America.
We’ll see how this goes.
But I have a feeling we’re gonna see a lot of butt-hurt leftists and economic-diplomacy illiterates.
That includes Modern Monetary Theorist & fan (translation money-printing communist) Janet Yellen.
Have you read the essay about leftism as a character defect born out of weakness and failure? You'll find it on substack. Persuasive.