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OF TARIFFS AND TRADE: What to Expect Next in Global Commerce What exactly are the new US tariffs targeting, how do they work, and what will the results be? By Evan Anderson Why Read: The flurry of tariffs being discussed by the new Trump administration will disrupt global trade and commerce immensely. What's more, threats to key US allies go beyond being startling; they have broad implications. This week, we dive into what tariffs really mean, from the nature of the method of taxation itself and its ripple effects to likely outcomes of the currently proposed US strategies. _______
I am a tariff man, standing on a tariff platform. - Then-presidential candidate William McKinley (1896) President McKinley made our country very rich through tariffs and through talent [. . . .] He was a natural businessman. - Then-presidential nominee Donald Trump President Trump has praised President William McKinley for his tariffs. At that time, in the late 19th century, the government was a much smaller part of the economy than it is now, and tariffs - which were much higher, on average, than they have been since World War II - were an important source of revenue [. . . .] There is no way that revenue from tariffs could replace the income tax and finance the government at its current size, even if there were substantial cuts to government spending. - Michael Klein, Professor of International Economic Affairs, Fletcher School, Tufts University
A new trade paradigm is upon us. As the blistering pace of changes since the second inauguration of President Donald Trump continues, one thing is clear: the tariffs and trade re-evaluations that characterized the his first presidency have not gone away. In fact, the new administration has redoubled its efforts. Tariffs on trade with China were to be expected. Added to the mix now are threats of tariffs on goods from Canada, Mexico, Europe, and, somehow, Taiwan. What, exactly, is going on? Regular Global Report readers are already aware that our work on intellectual-property theft and Chinese trade practices has led to INVNT/IP support of tariffs. (Disclosure: I am the CEO of INVNT/IP.) The TL;DR on that is simple: the Chinese system for trade has been designed to destroy and replace foreign production of key goods using espionage, theft, sabotage, and unfair trade practices, including extreme subsidization and dumping. (Those interested in delving further can see our FiReBooks publication Theft Nation, among countless other sources.) For industries being targeted for destruction by a foreign power, the only effective response to many of these practices is to either restrict trade or find a different means of evening the playing field. Tariffs are indeed one of the tools that can accomplish this. But as is often the case, this is a nuanced issue with many intertwined and complex features networked around the globe. The modern system of global trade is not some two-stroke motor; it is a garden. Kicking it hard when it isn't running right may not have the desired effect. Many current headlines make all tariffs sound like a waking nightmare. Others make them sound like the only solution to "protect America." Amid all the noise, it can be hard to discern not just what is correct, but also what is even going on in the first place. To understand why tariffs matter, and what they are good for, it is first critical to understand what exactly they do.
Tariffs raise prices once, so it's not ongoing inflation, but at the moment when the prices rise, it looks like inflation [. . . .] One of the concerns is that when that happens, the Federal Reserve might feel obliged to raise interest rates to keep a cycle of inflation from starting. So it could lead to a recessionary period. The higher prices facing businesses and consumers adversely affect them and this, too, could prompt a downturn in economic activity. - Michael Klein, Professor of International Economic Affairs,
Tariffs are a tax on imported foreign goods and services. The legal incidence of these taxes falls on the U.S. company doing the importing. If a company imports $100 worth of goods and tariffs are 20%, the company must pay a tax of $20 to the federal government. However, one of the useful insights of economics is that the legal incidence of a tax and the economic incidence are different. Taxes set off a cascade of adjustments that can spread or concentrate their ultimate economic burden. In the case of tariffs, these adjustments essentially lead to U.S. households paying higher prices.
Tariffs in and of themselves are not all that complex. The general idea is this: a foreign good is so cheap that it threatens domestic manufacturing, so the government imposes a tax on that item when it is imported. The obvious and immediate ripple effect is that the market responds to that new tax. The above quote from the Economic Policy Institute illustrates it well: the tax generates some revenue for the tariff-imposing government, and companies importing the items tend to pass most or all of that cost along to the citizens of the importing country. Despite any back-and-forth we see in the news cycle, it is inherently obvious that tariffs will mostly raise costs to the consumers in the countries that impose them. Importers won't volunteer to lose profit margin or become unprofitable. This is not a new idea; it's ages old. In fact, the United States helped to pay for the immense cost of the American Civil War and the transcontinental railroad by raising tariffs, and Lincoln himself (in a Republican party that resembled more closely the demographics of the current Democrat party) was a staunch protectionist. McKinley, too, was fervently pro-tariff - a fact that has clearly caught Trump's attention. What is mostly lost in the public discourse is why this was important then and what it means now. Global trade and tariff revenue in the late 1800s was both far simpler than it is now and a massive percentage of United States revenue. Modern income taxes wouldn't begin in the US until 1913, although a small income tax was established during the Civil War before being rescinded in 1872. Estate taxes in late 19th-century America were low (under 10%) and remained so until 1916. Tariffs were high, often nearing 50% during the same time period. By 1934, excise taxes represented the vast majority of US government revenue. After World War II, the situation had effectively flipped, and by 1950, income taxes (both personal and corporate) had almost entirely replaced excise taxes as the key source of government funding. Do you see the pattern? Wars are the largest creators of government debt. The next most expensive things government can do would be to roll out massive infrastructure projects or, nowadays, bail out corporations and fight pandemics. Before WWII, America paid for the massive costs of warfare and buildouts by taxing its citizens on goods. Today, they are taxed on income. The point is, the taxes happen regardless, if the government is to stay afloat. Tariffs raise revenue, but the cost of consumer goods bumps up. Income taxes raise revenue, but take-home pay is reduced. Estate taxes raise revenue, but at the expense of the children of the elite, who obviously lose out. Today, with government expenses at their current highs (including on servicing the national debt), the revenue from the current proposed tariffs could reach $US1.5 trillion by 2035. Meaning, a proposed tax of $1.5 trillion on the US citizenry over the coming decade. In the realm of balancing the US budget, this could do wonders, as the figure represents most of the deficit. As it stands today, the announced intention to continue tax cuts for the nation's wealthy, to the tune of $4.5 trillion in that same decade, makes it effectively a moot point. (This also makes the choice to establish DOGE to cut entire departments out of the US government - mostly at the expense of programs that support the lower and middle classes - make more sense.) While tariffs will help offset tax cuts, mostly what this plan represents is a way to pass on as many costs to the average American citizen as possible while avoiding the obvious other options: raising income taxes on the wealthy or raising excise or estate taxes. But tariffs are not only a revenue driver. They completely reimagine the way domestic businesses interact with the global trade system. Perhaps the most important aspect of tariffs to an industrialist would be the protection they offer. This was the reasoning behind the Tariff Act of 1930, or the Smoot-Hawley Tariff Act, which intended to protect American business from foreign competition. The tariffs imposed by the act were the second-highest in US history. With the Great Depression already begun and electrification drastically shifting the US economic landscape, the country was both overproducing goods and, simultaneously, in economic collapse. Exports were high, imports were low, and the United States was looking for a way to balance an economy that had shifted to factory production. (Like that of the Civil War, this was first and foremost an era that looked entirely different from today's geopolitical and economic climate - wherein imports are high, exports are low, and the economy is relatively healthy). The direct results of this were that US payrolls, construction, and productivity increased; and immediately thereafter, trade with Europe was drastically reduced and unemployment soared. A tit-for-tat global trade war ensued, with tariffs flying left and right. Canada, for instance, issued tit-for-tat tariffs, drastically reducing US outside trade. According to the US Senate website: As the economists predicted, the high tariff proved to be a disaster. Even before its enactment, U.S. trading partners began retaliating by raising their tariff rates, which froze international trade. The tariff fight solidified Hoover's ties with Republican regulars, but it shredded his standing among his party's progressives. Most of the progressive Republican senators who had campaigned for Hoover in 1928 wound up endorsing Franklin D. Roosevelt for president in the next election. Nor did the tariff sit well with the voters. In 1932 they turned the majority in both houses over to the Democrats, by large margins. The voters also made clear their disdain for the Smoot-Hawley tariff by booting both Reed Smoot and Willis Hawley out of office that year.
As we learned after President Herbert Hoover signed the Smoot-Hawley tariff at the outset of the Great Depression, vibrant international trade is a key component to economic recovery; hindering trade is a recipe for disaster. - Former Governor Asa Hutchinson (R-AR)
A lot of people believe, and I do at times, that some of our trade agreements are lopsided and we've got to look at them. But that doesn't mean that we're going to put a tariff on everything. What we should do is promote trade in the world, not try to stifle it [. . . .] - Senator Richard Shelby (R-AL)
The disaster that followed the Smoot-Hawley Tariff Act in 1930 was the result of a blanket tariff, raised against all imports. The implications are clear: when nations see tariffs raised against them, they respond by acting in their own economic defense. This should come as no surprise. The point of tariffs when it comes to protectionism, after all, should be to stop those foreign countries that are targeting and removing industries from the domestic economy. Protecting key industries makes good sense, as well as often being an issue of national security. For instance, as noted at the beginning of this article, we at INVNT/IP have long advocated for targeted tariffs on Chinese imports in the industries that we've learned the Chinese Communist Party (CCP) has specifically identified as targets. When those industries have their IP robbed, brought back to Chinese shores, "redigested" (in the words of some party documents), and then massively subsidized and dumped on foreign markets, there is strong cause for severe intervention. But a blanket tariff like Smoot-Hawley induces economic pain in all trade partners, across the board. The reciprocal responses we are seeing now are reminiscent of 1930; and they do little good for any of the countries involved. In the case of the People's Republic of China (PRC), tax revenue from all trade is currently being used to fund: aggressive action against European companies; Southeast Asian nations and their sovereign territory; the quiet backing of the brutal Russian invasion of Ukraine; the largest nuclear-arsenal buildup since the Cold War; and countless other dangerous programs and human-rights crises worldwide. Under such circumstances, a blanket tariff on all Chinese goods likely makes sense, as all revenue in PRC coffers helps to back a slough of negative outcomes that run counter to US (and global) interests. But Canada? As of this week, the new administration has threatened tariffs not just on noncompetitive Chinese firms dumping on global markets, but on European, Canadian, Mexican, and Taiwanese interests. The Europeans surely don't need a trade war with the US at the moment, as they struggle to wean off Russian energy and fight off the first salvoes of a quiet Chinese trade war and US reticence about continued support in the fight against the Russian invasion of Ukraine. As noted by Olivier Schmitt at the Carnegie Endowment's Strategic Europe: The rapid withdrawal argument is divorced from empirical reality for a simple reason: It overlooks the European economic base of power that would make such a quick uptick in defense spending possible, especially when coupled with potential Trump trade tariffs. In such a scenario, Europeans would probably double down on their trade relations with Beijing, since they would need it to maintain a modicum of prosperity to fund their increased defense effort. Far from reinforcing Washington, the proposed policies would only strengthen China's role in the international system by forcing Europeans to align more closely with Beijing. So, too, does Canada currently have little recourse except a mutually destructive spat. Nor is Mexico, struggling with a dual crisis on its southern and northern borders and a massive, ongoing fight to maintain sovereignty amid cartel fighting, in a position to be dealing with a US trade war. And Taiwan, busy amid its attempts to help the United States learn to produce high-tech chip technology on its own soil, was likely startled at the US shift from support and funding to open acrimony and threats under the new administration. Most important, all of the above nations are key US allies.
Tariffs are clearly here to stay for the foreseeable future. What will become of global trade in the current tariff environment comes down to two paths diverging. Which of those paths the new administration takes will be the most important economic factor for global businesses over the next decade. Let's take a look at this from the perspective of scenario planning. In intelligence work, there are two systems for assessing a potential situation (and "ne'er the twain shall meet" in the same sentence): assessments of likelihood and assessments of confidence. The Office of the Director of National Intelligence offers the below chart for likelihood assessments: For expressions of likelihood or probability, an analytic product must use one of the following sets of terms:
Following are three scenarios that encompass the current dynamics and what may come to pass. Scenario 1: Very Likely (80-95%) As promised, the Trump administration follows the descriptions it has clearly given of the trade future it envisions. China is increasingly separated out from other nations in US trade policy, and investments in supply-chain tracking and pressure on foreign nations and companies allow for more and more transparent tracking of which products contain Chinese-made goods and should be slated for tariffs. The administration threatens most nations with tariffs (in fact, just before we went to press, Trump signed a plan to impose or reciprocal tariffs for all US trading partners), but China is the one that sticks. In the style of negotiations between Russia and the West, the US threatens worst-case scenarios to other nations before walking back to gain concessions. The European Union, Canada, Mexico, Taiwan, and many other nations are threatened with massively damaging tariffs as the beginning to a harsh and unfriendly series of negotiations. All concede various things that the US administration wants (as Ukraine similarly begins to pay for military equipment with rare-earth metals). Depending on how much these nations give up, tariffs are either never put into place or they're drastically reduced as the carrot to the stick. So, too, is the revenue the US government was purportedly going to gain from them. Various demands that are impossible to accede to lead to far more reasonable concessions, but US allies globally lose trust in the United States as a reliable actor or partner. End Results: Better "deals" for US corporate interests, but continuous disruption leading to financial losses in the confusion; massive erosion in US alliances, trust, and goodwill; minor economic disruptions for 1-3 years; harsh decreases in quality of life, wellbeing, and life expectancy of US citizens as inflation jumps while social services are gutted to save money, resulting in unrest. Scenario 2: Unlikely (20-45%) After a period of advantageous "dealmaking," the US returns to a supportive stance toward its allies, having extracted various benefits from previously less-beneficial trade relationships. Trade policy toward China does not shift, and better tracking and surveillance of global trade leads to a significant improvement in the efficiency of tariffs on Chinese goods entering the United States. With trust strained but unbroken between the US and its allies, more-normalized trade relations resume with an "economic NATO" forming to effect a protective alliance against predatory PRC trade policies between Europe, East and Southeast Asia, and the Americas. End Results: Better "deals" for US and global corporate interests outside of China; regular reshoring to friendly nations, with inflation mitigated in part by friendly nations expanding trade relations; preservation of US alliances, trust, and goodwill, with some wariness; economic improvement among allied nations after 6-12 months of difficulty; generally sustained quality of life and little unrest, despite some price increases. Scenario 3: Very Unlikely (05-20%) It's serious this time. Blanket tariffs are applied to many nations representing much of US international trade. In a converse mirror image of 1930, the trade deficit (rather than the surplus) is cured by a lack of trade altogether. The initial boost to US reshoring, production, and payrolls falls victim to a new depression. The US trade-to-GDP ratio falls quickly, and companies working across borders suffer drastically. Business operations become extremely hard to handle as pricing and supply issues are consistent and unending, with a shrinking, isolated US economy. Low taxation meets global trade-war damages while standards of living decrease, cost of living becomes effectively unbearable, and civil unrest becomes the norm. End Results: Worse "deals" for US corporate interests with no allies to reshore to and increasingly limited business options over time; destruction of US alliances, trust, and goodwill; economic depression; societal unrest and civil disobedience at an all-time high. The pre-existing biases in this kind of analysis are many. Among them are the assumptions that the US generally benefits from its trade relations with other nations, that GDP growth and standards of living rise more in an open trading format than in isolationism, that the Smoot-Hawley debacle is a repeatable event given the right conditions (and that those conditions are being met now), and that US alliances are based on goodwill, trust, and historic performance as much as momentary mutual benefit. But while these clearly are assumptions, there is also much reason to consider them credible. For now, the era of tariffs is an obvious bifurcation from even the first Trump administration. If our assessment is correct, and the most likely circumstance is a "middle ground," businesses and citizens should expect to be navigating a complex world, with trade disputes occurring far more often than in the past. Disruptions will be more common, prices will rise, and standards of living will decline. In the words of Benjamin Franklin, "Failing to prepare is preparing to fail."
Your comments are always welcome.
Sincerely, Evan Anderson DISCLAIMER: NOT INVESTMENT ADVICE Information and material presented in the SNS Global Report should not be construed as legal, tax, investment, financial, or other advice. Nothing contained in this publication constitutes a solicitation, recommendation, endorsement, or offer by Strategic News Service or any third-party service provider to buy or sell any securities or other financial instruments. This publication is not intended to be a solicitation, offering, or recommendation of any security, commodity, derivative, investment management service, or advisory service and is not commodity trading advice. Strategic News Service does not represent that the securities, products, or services discussed in this publication are suitable or appropriate for any or all investors.
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Subject: "SNS: The New Age of Climate Resilience" Berit, You note: "The remediation of Paradise took 9 months and 3,000 workers in hazmat suits - who removed 3.6 million tons of debris. That's more than twice as much as was removed from the site of the World Trade Center." And I find myself with one big question: where does all that 'remediated' material end up? Is it sorted and processed and recycled or reused where possible, or is it a large pile of semi-toxic landfill storing up problems for the future, and where does a rich city like LA put that problem? A whole bunch of extra impact on CO2 from the fires and the cleanup and the rebuilding that make the next fire more likely to happen? Regards, Mary Branscombe Freelance Technology Journalism
Mary, Excellent question, and apologies for the delay in response. When I saw your email come in I had no answer, and just recently I saw this go by: https://www.nytimes.com/2025/02/11/us/wildfires-toxic-waste-sites.html
So the TL;DR is: they are staging the waste in the local area for sorting and then dumping it farther afield to a number of different landfills, some of which they do not want to identify. There is plenty of controversy. Your question was a critical one. Where do you put all that, and how do you keep it from poisoning the land it's on? Sadly, with the rainstorms approaching LA now and the likelihood of a lot more fire in our future, this will become a commonplace and dispersed problem. Evan Anderson
Subject: SNS: "Helion: The Open AI of Fusion? Berit, Nice piece!! In any such major emerging tech issue there are always fundamental "got to haves" including major issues, competitiveness, cost, doability, reliability. Safety. Time to market. Etc. Fusion satisfies none of these... I spend much time with folks with ideas but insufficient knowledge. Dennis Bushnell HFAIAA, FASME, FRAeS
Dennis, Thank you. Your response came just as I was wondering if I was being too down on the industry in general, so was a welcome gut check to hear that you have the same reservations about realism v hype wrt timing, commercial viability, etc. Very happy to have been able to include your perspective in the mix. Berit Anderson
Berit, The clearest, most comprehensive and most informative article on fission/fusion that I've seen. Thank you for your excellent writing on this and other articles you, Mark and stratnews have sent me. I really appreciate them. Steve Wehrly Lobbyist, Lawyer, Writer, Salesman
Steve, Thank you! We appreciate your continued readership. Hope to see you at our next Spark Salon! Berit Anderson
Subject: China's social credit score Dear Berit and Evan, Greetings from hot and sunny Adelaide. I've been in communication with a dear friend who is currently visiting family in China (MIT graduate, expat Chinese national, she's currently Switzerland based), when the topic of 'how are things over there right now?' came up. In the midst of our conversation, she made a curious observation which we are now debating: "Social credit score. I still don't know where the social credit score comes from. Everyone seems to know it exists in China but I've never heard of it, and nobody I know who lives in China knows what it is, which is a bit funny for me. "I think it would at least make sense that they make it public that this exists (whether or not you have access to it is another thing). If people know it exists, but they will never know how much score they have, then that's absolutely horrifying. "But if people don't know it even exists, it's not a concept at all, then what's the point? I don't really understand this part." "Maybe it's location specific, and not rolled out across China?" "I thought so too! But I have at least samples across very small towns to mid scale cities to mega cities like Beijing and Shanghai, but no one ever heard of it." This is where we are at. :) I'm throwing this question to you, as maybe some of the FiRe members could speculate on the answer in an open forum? It seems to me that the implications (either way) are quite profound. The CCP promotes its capability to monitor their own population with international fanfare, yet internally, its own citizens are baffled. Interesting times. Kind Regards, Anna Hackett The Hackett Foundation
Anna, Great question. The short answer is that the system first announced has evolved over the years and has not yet been implemented - perhaps because it elicited so much bad press over the years. This MIT article has a good overview of where things stand [as of November 2022] and where they are intended to go. Berit Anderson
Anna, Yes, they canceled and walked back a lot of early tests due to backlash. So it appears to have been rolled out far less quickly than originally planned, but as far as I can tell they are just moving forward more slowly now to boil the frog. They had a big international PR push to claim it wasn't as creepy as it was, which is telling. Currently it seems focused on getting businesses fully in line. I would guess the individual scoring rollout is still to come. They have been prototyping and testing various forms in discrete local areas, so most of the country probably isn't even aware of what has been tested in a few places to date. https://www.chinalawtranslate.com/en/sc-punishment-list/ https://www.chinalawtranslate.com/en/social-credit-action-in-2025/
From The Guardian (3/1/2019): Local governments are urged to use 'credit points' to make social credit incentive measures more relevant, including preferential treatment in areas such as medical care, childcare, elderly care, housekeeping, tourism, shopping, and travel. In the past, benefits such as waiving deposits at libraries, discounts on public transportation, or skipping lines for public services have been offered as incentives, and the Plan likely envisions more of the same. In practice, these rewards have been implemented inconsistently, with the intended recipients and providers of these supposed measures sometimes entirely unaware of the programs. But also in classic style, in a nation of so many, one person anecdotally (particularly one who toes the line) would not necessarily know they are being ranked if it is being done on the sly. So just because one person is blocked from buying a plane ticket doesn't mean their neighbor knows that that happened. At this point, with domestic goings-on ever more opaque to the West, and ever more opaque between Chinese regions and citizens, it will be hard to know what is going on. Imagine someone being oppressed by the police in Wagga Wagga. Would you hear about it? Now picture it is done in a complete public information blackout. Particularly in a society where people are culturally focused on shame and afraid to speak out about any topic that may affect their standing, or social credit . . . Crickets. Evan Anderson
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