Summer 2025 / Volume IX, Number 2
W hen American politicians start talking about “liberation,” it is usually not a good sign, at least in recent decades. Prior to President Trump’s “liberation day” tariff announcements on April 2, many of my generation associated the term with the George W. Bush administration’s insistence that Americans would be “greeted as liberators” after the invasion of Iraq. The latter proved to be a catastrophic blunder. And while it is still too early to gauge the full effects of Trump’s tariffs, some of which have already been suspended, it is clear that the administration’s liberation day moves suffered from serious miscalculations.
To be sure, the tariffs proceeded from sound motivations. The hollowing out of the U.S. industrial base over the last fifty years is now widely recognized as a major national security and macroeconomic problem, especially after the Covid pandemic and the Russia-Ukraine War exposed glaring vulnerabilities in America’s defense industrial base. There is—or at least there was—a broad, bipartisan coalition to address this crisis. Unfortunately, the policies the Trump administration decided to pursue seem confused, and the process by which these measures were determined and implemented has been confusing, to say the least.
Crash Course
On April 2, the Trump administration essentially embarked on a crash “decoupling” with multiple trading partners, particularly China, on which tariffs of up to 145 percent have been levied. Under any circumstances, this would be an extremely painful course of action. The costs of tariffs are felt immediately, while any benefits can take years to materialize—the time it takes to construct new production facilities and reconfigure supply chains. In the absence of alternative sources of supply, such massive tariffs will either raise the cost of goods considerably or, in some cases, make their provision entirely uneconomical, leading to shortages and disruptions.
Such economic pain itself makes this approach unlikely to succeed, as many businesses will conclude—correctly, in this case—that aggressive tariffs cannot be sustained politically. Companies will choose to wait out a temporary tariff storm rather than make investments in new supply chains that could take a decade to pay off.
The Trump administration nonetheless voluntarily chose this radical approach, and seems to have done so without any meaningful consultation with industry—including U.S. manufacturers that the measures were supposed to benefit—or political outreach. Minor changes to transportation safety regulations undergo more thorough preparation, vetting, and coalition building than did the largest tariff increase in a century.
Even the most hawkish tariff advocates outside the administration did not propose levying tariffs of this magnitude immediately, and to the extent that industry input was received, it was ignored. Notably absent from the liberation day press conference were any major business leaders as well as prominent Democratic or even Republican endorsements, signaling the policy’s fragility from the start. Indeed, the advice of Elon Musk was reportedly rebuffed, even though Musk, whatever his recent political and personal controversies, is the most successful American manufacturing entrepreneur in living memory.
Predictably, the reaction of the markets, as well as the general business community, was furious. Stock indices fell more than 10 percent in two days, and companies began scrapping forward earnings guidance and capital spending plans. Notably, Treasuries and the dollar also declined, signaling some level of foreign capital flight. As the turmoil deepened, administration officials waffled between insisting that the tariffs were permanent or merely bargaining chips in a new round of trade “deals.”
One week later, on April 9, the president “postponed” reciprocal tariffs for ninety days on most countries, though raising China tariffs further, admitting that increasing market volatility motivated the decision. On April 12, the administration waived tariffs for all countries on cell phones and various electronic products, promising to announce new sectoral tariffs later. The net result has been to place many U.S. manufacturers, facing higher component costs and working capital issues, at a distinct disadvantage, while the uncertainty generated by so many abrupt policy changes has had a chilling effect on new investment.
As of this writing, the administration has pivoted firmly to negotiating new trade deals, and Secretary of the Treasury Scott Bessent has stated that his plan is to negotiate with allies first and then approach China “as a group.” This is a sensible strategy, but the last few weeks have severely damaged American credibility and raise doubts about the durability of any deal struck with the Trump administration. Moreover, the administration took a highly combative tone with allies in its first two months over issues ranging from the annexation of Greenland to mocking Canada as the fifty-first state to publicly inveighing against European speech and election laws.
Trade agreements require complex negotiations in the best of times; it is not clear what can be negotiated quickly in this adversarial environment, especially since little groundwork has been laid. Inexplicably, in this context, the one abiding diplomatic commitment of the second Trump administration appears to be preserving American users’ access to the Chinese social media app TikTok. Whatever its goals, however, the administration seems to have made its task much harder than it otherwise might have been.
Long-Term Strategy
So, what have we learned?
At this point, it should be clear that a tariff-first strategy for reindustrialization is not going to succeed. Purely “protectionist” measures like tariffs work best when there is a domestic industry to protect. But many critical manufacturing sectors—such as cell phones, ships, consumer drones, processed critical minerals, various electronics components, and many others—are essentially nonexistent in the United States. In addition, certain critical manufacturing machinery and equipment are no longer produced here, so a reindustrializing America would, initially, have to increase imports of such equipment. Even when the domestic industry has not been entirely lost, trade protection without investment support has an uninspiring track record. American political discourse has been uniquely obsessed with tariffs as the first or only tool of industrial development, a fixation that is frequently counterproductive.
White House officials’ more recent statements suggest that they have finally internalized what their actions previously revealed: the liberation day tariffs were a costly mistake. The administration will now have to pull off a series of frantic negotiations just to extricate itself from an economic calamity, despite having already exposed points of weakness that forced a retreat from liberation day.
At the same time, however, policymakers need a longer-term strategy. A more practical approach, and the one used in the most successful cases of industrial development in recent decades, would first focus on investment in productive capacity and alternative supply chains. Parts of the administration have been working on various authorities to support investment in critical industry, such as a sovereign wealth fund, shipbuilding office, and others. This support should include everything from public-private financing mechanisms to workforce development, permitting reform, and beyond. Unfortunately, the administration is also considering gutting some existing capabilities in these areas, but the exact opposite approach is needed. Increasing investment in critical sectors needs to become the focus of economic policy.
Targeted tariffs and other trade remedies might then be used to supplement these investment policies, mainly to support infant industries until they achieve economies of scale or defend against obviously predatory practices. But the administration must avoid the on-again-off-again uncertainty of the last several weeks and demonstrate bipartisan congressional support to indicate durability. A reasonable adjustment period, depending on the sector and the circumstances, could also be provided before tariffs go into effect.
Strategic investment should also be the focus of the international negotiations that have now been launched. While equalizing tariff rates and removing non-tariff barriers are laudable goals, ample evidence suggests that tweaking trade terms will have only a limited impact. Multiple rounds of trade negotiations with Korea, for example, have removed various non-tariff barriers on U.S. autos, including in negotiations led by the first Trump administration. Yet the overall U.S.-Korea trade imbalance in autos has shown little improvement over multiple decades, and there’s no reason to believe that another trade agreement will change anything. A more serious approach would focus on joint investment projects in new or upgraded U.S. production facilities and securing their supply chains, which would have a much greater impact on rebuilding American industry and workforce skills.
Ironically, the errors of the liberation day tariffs mirror those of the “free trade” policy paradigm they were intended to supplant. The tariffs did not distinguish between sectors of varying strategic value or degree of difficulty in shifting supply chains. They were grounded in abstract economic theory and aggregate statistics—though it appears that even the formula used to set rates was wrong —rather than business realities. They also ignored both domestic and international political ramifications.
It is easy for American politicians to gravitate toward sophomoric theories that blame everything on the dollar’s reserve currency status and the like. Such notions conveniently absolve policymakers of responsibility for more directly consequential decisions and suggest that complex industry dynamics can be altered with a single press conference. But many of these currency and trade issues arose out of more fundamental policy choices that intentionally traded manufacturing capacity for intellectual property and investor protections, as well as cheap consumer goods and high asset valuations, over long periods. Railing against currency values and trade imbalances without addressing the deeper capital allocation issues confuses the symptoms for the cause. For several decades, the United States has pursued short-term gains at the expense of its long-term economic interests. Blaming others entirely for the results, and for simply pursuing their own interests, is intellectually lazy and politically counterproductive.
Too often, the Trump administration seems to be drifting toward Bush-era attempts to bend reality simply by force of will and aggressive unilateralism. Structural changes to the “international order” and global economy are needed. But the reason why such reordering is necessary is that the United States occupies a much weaker position than it has in the recent past, and must therefore engage more strategically. If the plan is to build better geo-economic frameworks to compete against Chinese industrial strength, then capriciously imposing tariffs on every potential partner while publicly intervening in their internal politics makes little sense. Such provocations also contradict a core principle of “nationalist” diplomacy, namely, leaving internal political debates and electoral politics to sovereign nations. U.S. leaders should be able to articulate American interests without gratuitous moralizing.
A Narrow Path
As rapidly declining approval ratings indicate, Trump’s second term is off to a rough start. The overreach and uncertainty of the liberation day tariffs is easily the most consequential unforced error, but it is far from the only one: Previously, two rushed attempts to impose tariffs on Mexico and Canada were also quickly walked back. High-level officials included a journalist on a Signal group chat used to discuss military operations. The creation of a “crypto reserve” and various memecoins predictably exposed the administration to accusations of self-dealing. And scattershot DOGE cuts seem to have reduced government efficiency in some areas while expectations of actual budget savings have rapidly diminished—not to mention multiple instances of inaccurate reporting on their own website. It is almost a tragic irony that Elon Musk decided to devote his political career to amateurish budget wonkery rather than leading what could have been a broadly popular effort to rebuild the U.S. industrial base.
This administration has always been explicit about prizing loyalty over all other qualities in its hires. But the last two months have shown that the costs of incompetence are not insignificant. The administration has also quite reasonably wanted to move fast and avoid getting bogged down in proceduralism. But they might have paid more attention to the hazards of moving too quickly and failing to develop an effective strategy. To outsiders, at least, post hoc rationalization and online vulgarity too often seem to be substituting for sound policy formation.
Still, the administration has made important progress in a number of areas. Some significant disruption was always going to be necessary to accomplish the critical reforms demanded by the present moment. Making an omelet inevitably requires breaking some eggs, and the Overton window has certainly shifted. A more coherent articulation of ends and means is needed, but it is still possible to achieve successful negotiations with major trade partners. The president should be commended for taking on difficult, long-term challenges and being willing to look beyond short-term stock market moves.
Nevertheless, confronting hard choices only raises the stakes of making the right decisions, and the administration’s chosen course is a very difficult path. The next few months will be pivotal for the political future of this presidency and the long-term future of the country. The situation after liberation day will require much sharper policy execution than what came before.