Trump 2.0 has certainly stirred up a hornet’s nest. The US announced the introduction of tariffs that are not only wide in scope but bold in ambition. Many have criticized the move, with some describing it as madness, suggesting it will have a negative impact not only on the global trading system but on the US itself, with no guarantee that it will even address the problems the US has with the current international trading system, which it deems unfair.
Its introduction was certainly not unexpected. President Trump had been threatening to do it since last year. During his election campaign, he had already stated that the EU would pay a “big price” for not doing enough to purchase US goods. Not long after taking over, he threatened to impose tariffs on Canada, Mexico, and China. For sure his constant backpedaling meant there was a lot of uncertainty about whether he would go ahead or not with this plan. But now that it has happened, it has left most countries scrambling to find an appropriate response.
Even experts who have denounced the US’ latest action are unsure what advice to hand out. Those calling out this madness have suggested a calmer response so as not to rock an already unsteady ship. Others have already drawn their guns from their holsters and fired back. Whatever it is, any illusion of order that we might have had is suddenly shattered, and we now seem to be living in the wild, wild west, where the fastest draw wins.
Is this the end of the liberal international order? Are we headed for more turbulent and perhaps orderless times? How can countries big and small respond, if they even can or should? As this piece was being drafted, even more developments were unfolding, so much of the ideas, arguments, and recommendations may no longer be valid by the time this goes to print. This piece might still be useful, though, as a record of what happened on April 2, especially as an attempt to deconstruct the “madness” of Trump’s tariffs, but also as an attempt to determine the appropriate response for the rest of the world.
This piece is divided into four sections: first, to understand the rationale behind the tariffs; then, we assess if they are truly a product of lunacy; then, we assess how far this will go; and lastly, how should countries respond?
Rationale for Trump’s Tariffs
Trying to understand US’ foreign policy today is challenging because it is so erratic, made worse by sporadic statements emanating from Washington that at times more often than not contradict themselves. If purely based on recent actions, whether it be threatening to take over Greenland, seemingly abandoning Ukraine, or withdrawing from the WHO, the Paris Agreement, the UNHCR, or the UNHRC, it appears the US seems inclined towards dismantling the existing liberal international order and replacing it with a free-for-all all-you-can-eat buffet.
Even in trade, the recently released America First Trade Policy provides indication that the US is making a significant departure from the liberal international order, favoring US economic interests over fostering global stability and security through trade. Instead, it frames economic interdependency as a vulnerability and prioritizes reducing reliance on foreign supply chains through protectionist measures. This challenges the foundational principles of liberal economic thought that have guided free and open liberal international trade institutions for decades.
Clearly, recent actions confirm that the US is prioritizing its interests above all else, even at the expense of sacrificing allies. This is nowhere better reflected than in the recent ‘Liberation Day’ tariff announcement. Since he began proposing the idea of tariffs, the reasons have ranged from addressing non-economic issues such as illegal migration and fentanyl to addressing the US’ trade deficit, which seems deeply entrenched in the president’s mind.
The recent tariffs, though, have been (forgive the pun) huge in terms of scope and ambition. In a fact sheet detailing the rationale of the tariffs, the goal is to correct trade imbalances, but it states that these imbalances are not only caused by a lack of reciprocity from trading partners in the tariffs applied but also in the non-tariff barriers applied. He highlighted China’s use of “non-market policies and practices” and India’s “burdensome and/or duplicative testing and certification requirements,” among others.
This may be a reason why the tariff numbers have to date made no sense to anyone but Washington, not unless these NTBs are considered. The recently released, almost 400-page 2025 National Trade Estimate might shine some light on how the US’ views this imbalance. What is more detrimental has been the US’ action targeting friends and foe alike, whom he has accused of having “looted, pillaged, raped, and plundered.”
Most commentaries have described his action as lunacy. Some experts have already opined that this will lead towards an all-out global trade war and even a global recession. More serious is what it will do to further diminish the US’ legitimacy as a world leader and throw the global order into chaos. This is no way how a state, a rational one, should behave.
Method in Madness
The rational state idea is a key assumption of major international relations theories. It assumes that states act in a manner that seeks to maximize their interests. Mearsheimer and Rosato further posit that a rational state is one where the ideas of key policymakers are based on credible theory about how the world works.
At first glance, Trump’s actions could be deemed irrational. Yet we forget that President Trump views himself as the ultimate wheeler-dealer. Not many will agree, while some will say that his business negotiating strategies are ill-suited for political negotiations at the international level. Nevertheless, it does raise the question of negotiating strategies and the need to view these latest developments through those lenses.
If understanding President Trump’s negotiating strategies is important, then reviewing his now infamous book, The Art of the Deal,’ is necessary. There are several important phrases there that inform on his rationale. For example, those focused on how these tariffs have been calculated are missing the point. In his book, he writes, “I like thinking big. If you’re going to be thinking anything, you might as well think big.” The liberation day tariffs were clearly designed to be ambitious (“he wanted the numbers to be huge […] that would make other countries treat us fairly”) to get the world’s attention, which they have.
Those focused on how these tariffs will impact the domestic economy or how they will affect the US’ relations with these countries, some of whom have been close US allies, are also missing the point. According to Trump, “If you plan for the worst—if you can live with the worst—the good will always take care of itself.” As the quote implies, whatever the impact that results from these tariffs, the decision had been made in full knowledge and acceptance of the worst-case scenario.
Moreover, if his instincts are right (“I like to think that I have that instinct.”), then the decision to impose tariffs on friends and foe alike will elicit little reaction. At this juncture, most states have taken a wait-and-see approach, with some already stating their readiness to negotiate with the US on lowering their tariffs, indicating that he knows his market.
We still need to understand the why, and in this, his book is revealing. He wrote, “Perhaps the most misunderstood concept in all of real estate is that the key to success is location […] you don’t necessarily need the best location. What you need is the best deal.” President Trump wants a good deal and is utilizing tariffs to achieve this. He has already indicated that he is now open to negotiations.
Clearly, the President’s plans are not mad, for they are aimed at maximizing gains and based on what he believes is a credible theory of how the world works. Are they working? According to the US Trade Representative, Jamieson Greer, nearly 50 countries have reached out to the White House to begin trade negotiations. Whether this number is accurate is anyone’s guess, but it has been reported that several countries—the UK, Australia, Malaysia, and Thailand—have indicated interest in negotiating.
How Far Down the Road Will This Go?
As indicated in the fact sheet, much depends on President Trump himself. The wording in the fact sheet goes, “These tariffs will remain in effect until such a time as President Trump determines that the threat posed by the trade deficit and underlying nonreciprocal treatment is satisfied, resolved, or mitigated.” It is unclear what the threshold will be that will satisfy the President. Perhaps he does not know either.
But on the question of how far he will go, his book provides some insight. Trump writes, “Money was never a big motivation for me. […] The real excitement is playing the game.” This gives you an indication he is ready to go the distance, for now. Strangio has stated that the messaging from the White House has been rather mixed, suggesting that there is no indication that he will begin negotiations now. This could be, as some suspect, merely a negotiating tactic.
What is key, however, in any negotiations is the possession of leverage, a point President Trump is fully aware of (“the worst thing you can possibly do in a deal is seem desperate to make it”). In a Republican-controlled US Congress, he appears to be in a position to see this through. Nevertheless, there is disquiet brewing among lawmakers, and a bipartisan bill—Trade Review Act 2025—has been introduced to reassert Congress’ authority over the executive to levy tariffs.
The President will face mounting pressure from the business community. The tariffs sent the stock market tumbling. US businesses appear very unhappy with these tariffs. If the impact of the tariffs does hit closer to home, rising inflation caused by costlier imports will add more pressure on the President. The tariffs have already impacted the dollar, which could worsen inflation. Compounded by expected slow growth, the US economy could be at risk of stagflation.
If these scenarios do materialize, which will lessen his leverage, then he will need to review this decision. While the President has yet to show any indication he will deviate from this path, he has already shown a readiness to change course when it matters (re: his decision to forestall tariffs on Canada and Mexico). After all, according to Trump himself, he never gets too attached to one deal or one approach. In his own words, “I keep a lot of balls in the air, because most deals fall out, no matter how promising they seem at first.” Does that mean there is hope of a reprieve? His latest decision to forestall implementation by 90 days seems to signal this.
Should the World Respond in Kind?
The more important question is how these measures will stand when scrutinized against the US’s WTO commitments (assuming they don’t withdraw, as they did from the WHO). Under WTO rules, countries are allowed to increase tariffs so long as they do not go beyond their bound tariff commitments. Based on the WTO’s record of tariff profiles, the US has a very liberal trading regime, with a simple average applied rate of 3.3% and few tariff lines bound at a tariff rate higher than 25%.
By implementing these tariffs, the US will have broken its WTO commitments, especially the MFN and bound rate commitments. However, since the appellate body is not functioning, it is unlikely any member will bring the matter to dispute settlement, leaving it with no other recourse other than to take unilateral measures, which could risk it breaking its own WTO commitments.
Not surprisingly, except for a few that have vowed countermeasures, many countries have decided to take a more cautious approach. Perhaps rightly so, since the US is open to negotiating them down. It may be the wisest course of action, considering how the US views challenges. In his book, he portrays himself as a fighter who is ready to “fight back very hard” when “people treat me badly or unfairly or try to take advantage of me.” He has revealed this by imposing a tariff rate of 104% on all Chinese imports in response to China’s retaliatory tariffs, which could go even higher.
This preoccupation with unfairness and reciprocity has been very apparent since his first term. In 2017, when delivering a speech at the APEC CEO Summit, he stated that “we seek robust trade relationships rooted in the principles of fairness and reciprocity.” More recently, in a speech at Davos early this year, the president accused the EU of treating the US “very unfairly, very badly.”
Notwithstanding, any response should ultimately be dependent on whether these developments will really be as bad as made out. Certainly, the imposition of tariffs is bound to cause short-term shocks to the global trading system, but it is doubtful that it might, as some economists have opined, lead to the end of the existing “global free trade order,” since many other countries do not have an issue with it.
Even if the negotiations do not materialize as expected, the international trading system will eventually stabilize as producers begin to get around these new constraints, i.e., raising prices, reducing exports to the US, and/or trade diversion. A new equilibrium, perhaps not an ideal one, will inevitably emerge.
An Opportunity to Reset
Even if the status quo changes, there is a silver lining. Much of the international trading system is premised on David Ricardo’s widely accepted theory of comparative advantage. This idea forms the foundations of the institutions that now govern the global economy. Certainly, when done right, there is no denying that nations can and do gain from international trade.
However, success has also meant that for so long we have accepted the mantra that free trade has been good for us without question. In fact, much of the attribution of madness to Trump’s tariffs is derived from our blind acceptance of the dogma that fewer barriers (tariffs or non-tariff barriers) are good.
Tariff has too many negative connotations attached to it. They could easily be likened to the bell in Pavlov’s analogy about his dogs. In truth, tariffs are still considered a useful tool to pursue industrialization. This is why most countries continue to impose tariffs and why their bound rates, as reported in the WTO, remain very high.
The reality is free trade is not without problems. Studies by Urata and Narjoko as well as Adão, Carrillo, Costinot, Donaldson, and Pomeranz have found that while trade did benefit countries, it has contributed towards inequality. This has prompted some countries to approach trade liberalization cautiously, including utilizing industrial policy (e.g., tariffs, subsidies) to achieve growth and development.
Clearly, the largest, most advanced economy and the one-time champion of laissez-faire is slowly realizing that unfettered trade doesn’t always deliver on its promises. Thus, leading them to revert to protectionist trade policies and tariffs as a legitimate tool to pursue industrialization.
Notwithstanding, an opportunity presents itself for a reset; an opportunity to begin again and pursue trade liberalization not for its sake alone, but one that benefits all participants, adheres to ethical practices, ensures fair prices, and encourages sustainable development, but more importantly, is built on maintaining equitable relations between countries.
The introduction of reciprocal tariffs can be viewed as the US closing the door to free trade, but it is also an opportunity to open a window to negotiate better free trade. Conditions today also offer countries a better negotiating position. The US is no longer the powerhouse it once was, and countries have viable alternatives. This means that all countries have a fair shot at a good deal too if they can band together.
For those that might believe Ricardo would turn in his grave at these developments, lest we forget, Ricardo’s primary concern had always been the welfare of its citizens. In this context, then maybe Trump’s tariffs might ensure that benefits from trade liberalization are fairly distributed to all. The onus is on the rest of the world how they will respond. Do they negotiate to preserve the LIO as is or to make it better?
