As the United States (US) faces a challenging economic landscape, the return of protectionist policies dubbed "Trumpeconomics 2.0" prompts important considerations about their long-term effects on American jobs and global markets. These policies aim to strengthen domestic manufacturing and spur job growth, but they may lead to retaliatory tariffs and escalating trade tensions. It's essential to assess whether the short-term benefits of protectionism could ultimately undermine the long-term economic health of the United States and its workforce. The "Tariff Trap" illustrates the contradiction of protectionism: while intended to safeguard American industries, such measures can harm the very workers they aim to protect. As trading partners impose counter-tariffs, U.S. exporters risk losing access to foreign markets, resulting in higher consumer prices and reduced competitiveness of American goods. Moreover, the complexities of modern supply chains mean that industries dependent on global inputs may see job losses rather than gains.
THE INHERENT GOALS OF "TRUMPECONOMICS 2.0": On January 20, 2025, President Trump signed the "America First Trade Policy" Presidential Memorandum, which aimed to reverse the nation's economic decline by prioritising American interests in trade. He has shifted trade policy to focus on national interests and established tariffs as a legitimate tool for public policy. Trump emphasises the need for strong enforcement against countries that exploit the U.S. and has demonstrated that effective negotiations can open markets for American exports, particularly in agriculture. His approach has shown that a robust trade policy can create jobs, foster innovation, enhance national defence, increase wages, support farmers, and revive manufacturing-outcomes many believed impossible.
April 2, 2025, the day he announced global tariffs, could mark a pivotal moment in American history, yet it risks being perceived as a disaster akin to the 1929 stock-market crash that led to the Great Depression. On April 23, 2025, Treasury Secretary Scott Bessent stated that "America First" does not equate to "America alone," characterising Trump's trade policy as a means of generating "strategic uncertainty" to leverage trade negotiations.
TRUMPECONOMICS 2.0-- RISKS FOR U.S. JOBS AND GLOBAL MARKETS: The "America First" strategy focuses on tariffs, tax cuts, and aggressive trade negotiations to strengthen U.S. industries and lower trade deficits. These tariffs lack solid justification, relying solely on the value difference between U.S. imports and exports, which the administration calculated and imposed. Instead of rebalancing trade, these tariffs risk pushing the U.S. economy- and potentially the global economy-into recession. This policy framework carries significant risks of backfiring, negatively affecting both U.S. jobs and global markets. Here is an analysis of the potential consequences.
RESTRAINTS ON TRADE AND THEIR IMPACT ON THE U.S. DOMESTIC MARKET: Tariffs on imported goods raise costs for businesses and consumers, leading to higher prices that can hinder economic growth and reduce purchasing power. Industries reliant on imported components may face operational challenges, risking job losses in sectors that cannot absorb these costs. Retaliatory tariffs from trading partners may decrease demand for U.S. exports, further affecting employment in export-driven industries and prompting layoffs and reduced investment. Michal Kalecki's theories suggest that government interventions like tariffs, while aimed at job protection, can ultimately lead to decreased investment and long-term job losses as firms become less competitive. Tariffs disrupt the Ricardian Model of Comparative Advantage by imposing artificial trade barriers, resulting in inefficiencies and potential economic downturns. Moreover, protectionist policies can limit access to affordable imports and international collaboration, which may stifle long-term job creation in high-tech and innovative sectors.
ECONOMIC ISOLATION AND MARKET VOLATILITY: Trumpeconomics 2.0 promotes reshoring American production through tariffs, which act as a consumption tax that raises input costs and inflates the Consumer Price Index (CPI). When the U.S. imposes broad tariffs, key trading partners like China, the EU, Mexico, and Canada often retaliate with similar duties on U.S. exports, such as soybeans, bourbon, and motorcycles. This cycle of retaliation leads parties to seek alternative sources, gradually weakening bilateral trade relationships. Companies unable to absorb tariff costs may restructure their supply chains to bypass the U.S. market, as seen with semiconductor manufacturers moving final packaging to Southeast Asia to maintain a "non-U.S. origin" status for Chinese clients. As countries reduce internal tariffs and harmonise standards, a 5 per cent tariff on U.S. products can deter bids, while competitors from member nations face no such barriers. The longer the U.S. remains insulated, the harder it becomes to negotiate favourable re-entry, creating a structural disadvantage. Consequently, U.S. tariffs and trade barriers can result in economic isolation, shifting "Friend-Shoring" to "Self-Shoring."
LESS FOREIGN INVESTMENT IN U.S. ECONOMY: The Foreign Direct Investment (FDI) environment in the U.S. may experience a chilling effect. Investors prioritise predictability over the headline rate, and unpredictable, tweet-driven tariff changes make the U.S. policy landscape appear riskier, prompting capital to flow toward regions with clearer trade rules. Decreased FDI results in slower diffusion of foreign technology and management practices, ultimately hindering long-term productivity growth and fostering isolation.
Reprioritising fossil fuel subsidies over clean energy credits will divert R&D investments and venture capital from low-carbon technologies, slowing global advancements in batteries, green hydrogen, and Direct Air Capture (DAC). Foreign companies may hesitate to introduce innovative clean technologies in the U.S. due to a perception that the country is increasingly favouring fossil fuels over clean energy. Trade wars and negative investment scrutiny can also lead to a shift in FDI away from the U.S. For instance, tensions between the U.S. and China have sometimes allowed South Asian and Southeast Asian economies to attract Chinese investments.
REDUCED COMPETITIVENESS AND INNOVATION: The U.S. government's protectionist measures can lead to declining competitiveness and innovation, particularly in high-tech sectors. As industries increasingly rely on government support for survival, they may become less motivated to pursue innovative strategies vital for maintaining a market edge. This dependence can stifle creativity and technological advancement, ultimately restricting growth potential. Consequently, the future job market may see fewer high-quality positions, as industries that once thrived on innovation struggle to adapt in a sheltered environment. In the long run, this trend could adversely impact the overall economy, resulting in limited opportunities for skilled employment and professional development.
RECIPROCAL TARIFFS DISRUPT GLOBAL TRADE AND ECONOMIC ORDER: Reciprocal tariffs imposed by the US will severely disrupt global trade and the economic order, leading to decreased international cooperation. The US argues that it suffers trade losses and uses "reciprocity" to justify higher tariffs, undermining the balance achieved through years of multilateral negotiations and ignoring the benefits it has reaped from international trade. These unilateral tariffs violate World Trade Organisation (WTO) rules and risk provoking retaliation. The European Union, Canada, and others are preparing countermeasures against the US. Yale University's Budget Lab reports that a 20 per cent Broad Tariff on All Imports could raise US consumer prices by 2.1 per cent and reduce real GDP growth by 1 per cent. Rising trade tensions, particularly with China, may trigger retaliatory actions that destabilise markets, deter investment, hinder economic growth, and disrupt trade. The Smoot-Hawley Tariff Act of 1930 illustrates this risk; its high import duties led to retaliatory tariffs from other nations, significantly diminishing international trade and worsening the Great Depression.
To conclude, the rise of protectionist policies under "Trumpeconomics 2.0" poses significant challenges for the U.S. economy and workforce. Although intended to bolster domestic manufacturing and protect jobs, these tariffs could lead to severe consequences. Retaliatory trade actions may destabilise both the U.S. and global economies, harming longstanding trade relationships and jeopardising international agreements crucial for economic stability. As manufacturing costs rise and consumer confidence declines, the risk of recession increases.
Policymakers should prioritise trade collaboration over confrontation. Companies could innovate or seek domestic alternatives through research and development, potentially stabilising the economy despite protectionist measures. By recommitting to a rules-based international trading system, the U.S. can enhance competitiveness and promote sustainable growth. Transitioning from protectionism to strategies that encourage mutual benefit and innovation is essential for the future success of American workers and the global economy.
Dr. Md. Abdul Latif, (PhD in Development Policy) Global Ambassador & ADB-JSP Scholar; Additional Director, Bangladesh Institute of Governance and Management (BIGM). abdul.latif@bigm.edu.bd
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