What’s Trump’s strategy beyond tariffs?

Swamp readers are in for a treat today, because my respondent is Julius Krein, the editor of American Affairs, and a very smart conservative thinker. He cares as much about the topic of industrial policy and the need to boost manufacturing in the US as I do, and so I wanted to bring him in to do a check-in on what we’ve seen so far from the Trump administration in terms of efforts to bolster American industry.

Let’s start with the tariff rollercoaster. I am personally not against tariffs per se. I thought that the first Trump administration (particularly former US trade representative Robert Lighthizer) was correct to pull up the scrim on the dysfunctional US-China trade relationship. No rich country can compete against a state-run behemoth with an economy that is fundamentally incompatible with World Trade Organization rules, which were essentially built for Europe and the US. Somebody needed to say that out loud, and it’s good that Trump did. The fact that Joe Biden then came in and kept the tariffs on China but also started to rebuild the US semiconductor industry was even better.

Fast forward to today, though, and you see Trump 2.0 essentially unwinding some of the success of his first presidency during which tariffs on China resulted in bringing some industry back to North America. To be fair, some of that nearshoring was already in train, as rising labour costs in Asia dovetailed with higher energy prices and conflict risks in the South China Sea. But certainly, the tariffs bolstered manufacturing in Mexico, and the USMCA (which Trump negotiated) further boosted regionalisation.

That is, to my mind, a good thing. Put aside any threat of great power conflict; even if there weren’t good national security reasons for a certain amount of decoupling from China, there are basic resiliency and redundancy reasons to have multiple nodes of production for key goods around the world. I’ll go back to chips here. It was never a great idea, in my mind, to have 92 per cent of high-end semiconductor manufacturing capacity in Taiwan. So, when the Chips Act passed, and it became clear the US would rebuild in this area, Europe followed suit with their own industrial strategy around semiconductors, and you now have more global resiliency for a crucial good.

Given this, I simply don’t understand why Trump 2.0 is choosing to slap tariffs on adversaries and allies alike, at a time when you need teamwork to combat Chinese mercantilism. Not only is it a good idea to have allies on board to build shared consumer demand blocks and help fill in parts of the supply chain that America doesn’t have (as in the shipbuilding industry, for example). But you also need allies to support a weakening of the US dollar, which is part of a plan to make American manufacturing more competitive.

The so-called Mar-a-Lago accord, which aims to replicate the Plaza Accord, in which the Reagan administration worked with several other countries to weaken the dollar, is far less likely to happen when Trump is alienating friends as well as penalising enemies (though it seems far less clear which is which any more).

I’m also concerned that there don’t seem to be any clear moves under way to support worker training and think through the implications of retaliatory tariffs on US industry (even Tesla is complaining about that). This seems like a shoot from the hip approach that is unlikely to rebuild US industry. Instead, it could tank the markets and alienate potential allies with which the administration could build a shared approach to China.

Julius, you are now, in addition to your work at American Affairs, running a US manufacturing trade group — the New American Industrial Alliance. Am I missing a trick here? Do you agree with my assessment? Or is there some greater method to what seems like madness?

Recommended reading

• See this 404 Media blog post by Emanuel Maiberg looking at how French universities are capitalising on a post-Trump “brain drain” from the US. I expect this will also speed up the trend already under way for American students to study abroad (which is often much cheaper than attending college in the US, even when paying full freight overseas).

• David Brooks had a nice summary of the own goals of the Trump administration, which has managed to trash Nato, the west, American soft power and the transatlantic alliance (among other things) in a few weeks.

• And in the FT, see the five ways Europe can boost growth fast, and don’t miss Janan Ganesh’s column on why recession won’t deter Trump.

Julius Krein responds 

Many US manufacturers would probably agree with at least some parts of your assessment. The early tariff announcements included items — such as Canadian oil and gas — that even the most hawkish tariff advocates did not have on their bingo cards; if anything, higher energy costs run counter to the goal of rebuilding American industry. US trade policy will also have to reckon with the fact that our industrial base is so hollowed out that rebuilding it will initially require more imports of equipment and input materials.

To date, the administration has offered multiple rationales for its trade policy. In addition to reshoring, tariffs have been part of negotiations around combating fentanyl trafficking, and the president has also proposed using tariff revenues to offset income tax cuts.

One can make an argument for all of these things, but I think there needs to be more clarity around which tariffs are part of a long-term strategy for re-industrialisation and which are principally intended as bargaining chips in short-term negotiations.

Long-term investment decisions in capital-intensive sectors such as manufacturing require more certainty on underlying policy. The administration might also benefit from more communication with US manufacturers on these issues.

In addition, key personnel at the office of the US trade representative, and commerce and Treasury departments have only recently been confirmed. Now that the full trade team — which I consider very strong — is in place, there is an opportunity to develop a more systematic approach. The administration has announced a review of the China Phase One trade deal, and the USMCA is up for review and renewal in 2026. These exercises should be helpful in informing future trade policy.

Tariffs are a necessary and useful policy tool — one too often ignored for ideological reasons prior to Trump’s first term. But I also think that tariffs are most effective when part of a broader re-industrialisation strategy, which includes everything from tax to permitting reform to government procurement to workforce development to investment support and beyond.

Important things are happening in these other areas, such as new efforts on shipbuilding and a sovereign wealth fund, though they have not attracted as much media attention. Personally, I would encourage the White House to approach trade policy as part of a much larger effort, not merely as a standalone plank.

Regarding your point about working with allies, ironically, Europe may be a tremendous beneficiary of the early actions of the Trump administration. The rupture that has played out in public is unfortunate, but a Europe that is serious about rebuilding its own defence capabilities and its own industry more generally, will be better for both sides in the long run. And while I suspect that relations may be strained at the government-to-government level for some time, at the private sector level, there are many opportunities for co-operation on re-industrialisation, and some discussions are already under way.

Finally, it is worth noting some of the differences from Trump’s first term. In the past, there was significant opposition to the president’s tariffs on China. This time, while everyone is focused on Canada, there seems to be little resistance to raising China tariffs, and there is a serious constituency for finally closing the de minimis loophole on Chinese imports as well.

I think a larger portion of the US business community now sees the importance — and urgent necessity — of re-industrialisation. Blackstone’s Stephen Schwarzman, for example, even made relatively positive comments about Trump’s tariffs recently. Thus the Trump administration has an extraordinary opportunity here, but everyone needs to recognise that re-industrialisation will be a marathon, not a sprint.

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And now a word from our Swampians . . .

In response to “Je suis Khalil”:
“The binary logic being embraced by leaders such as Katrina Armstrong seems shockingly convenient. Multiple truths can coexist, such as that antisemitism is hateful discrimination with no place on college campuses, and that government action that takes a university hostage is unconstitutional and was, until recently, unfathomable.” — Jennifer Ruth Hoyden