Trump’s tariffying threat

Donald Trump’s characteristically rambling speech at Davos yesterday touched upon many familiar themes: Europeans must ramp up defence spending; the EU and China should address their “unfair” trade surpluses with the US; and Russia’s “horrible” war in Ukraine needs to end.

But one comment, in particular, stood out from the new US president’s speech.

“[If] you don't make your product in America, which is your prerogative, then very simply you will have to pay a tariff, differing amounts, but a tariff, which will direct hundreds of billions of dollars and even trillions of dollars into our treasury to strengthen our economy and pay down debt.”

The remark is revealing for three reasons.

The first is that it definitively settles an ongoing debate among economists – and, most likely, among Trump’s own cabinet members – about how “Tariff Man’s” repeated threats to impose duties on US imports should be understood.

According to one view – endorsed by, among others, Vice President JD Vance – tariffs are simply good economics. By implementing them, the US will boost its tax revenue, raise citizens’ wages, and turbocharge its economy.

“Anything that you lose on the tariff from the perspective of the consumer, you gain in higher wages, so you're ultimately much better off,” as Vance put it in an interview last year.

A second interpretation – supported by, among others, Trump’s pick for US Treasury secretary, Scott Bessent – is that the tariff threats are fundamentally not grounded in economic concerns. Rather, they "can be used for negotiations" – a strategy designed to win concessions from, or gain leverage over, other countries.

Trump’s Davos speech conclusively demonstrates that the US leader aligns with the 'Bessent' rather than the 'Vance' interpretation.

For Trump is not, after all, primarily making an economic argument for tariffs – although, admittedly, he does note that tariffs do have certain economic benefits, such as boosting tax revenue.

To him, tariffs are ultimately a ploy – a way for the self-proclaimed “deal maker” to get what he wants.
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