The geopolitics of tariffs

How Trump will use trade in furtherance of consolidating over the West and isolating China into a separate sphere of influence.

Commercial audience: Supply chain managers, traders, importers and exporters, anyone concerned about inflation, European businesses, strategy teams.

Trump announced his “liberation day” tariffs on 2 April.

Scott Bessent, Trump’s treasury secretary, helped oversee George Soros’ efforts to break the British pound in 1992. This man knows financial markets and how to break countries’ economies. We warn against seeing the tariffs as a merely economic or knee jerk reaction.

The uncertainty created by tariffs is deliberate. Imposing tariffs on Canada one day, suspending them, negotiating new terms, then re-imposing different tariffs serves Trump’s purposes.

The Trump administration wants companies to be unsure of where to locate manufacturing, and, therefore, to choose the biggest and richest market: the USA, as their industrial base. This will push automation, and may even justify a more lenient approach on illegal migrants in the future. If there is enough growth, there is less pressure to get rid of competition for labour created by immigration.

An image from a 2023 Bank of America chart on barriers to trade, showing the US as the most open to free trade.

Part of Trump’s purpose is to reduce the trade deficit, rather than champion free trade, and to bring back critical sectors, such as steel, shipbuilding, electronics, microprocessors, and antibiotics to the US. This is why it appears to some analysts that the tariff rates were calculated by dividing the trade surplus of any given country by its exports, then halving that rate.

More importantly, Trump is seeking to turn America into a manufacturing, relatively autarkic, country, as he believes this is what makes it wealthy and guarantees its geopolitical freedom to act. However, we believe that there is a wider geopolitical agenda.

Trump is not just attempting a reverse Nixon by reconciling with Russia to separate it from China. He is aiming for a repeat of George Keenan’s containment strategy which targeted the Soviet Union, this time against China. He is also aiming to make sure that his control over the West is fully consolidated.