The power calculus driving Trump's tariffs

Asia Times

19 hours ago

Despite dire predictions that US President Donald Trump's foreign policy, dominated by real and threatened manipulations of American tariffs and trade practices, US inflation rates and other measures of American economic vigor do not yet give cause for alarm.
Indeed, at this writing US-China trade talks seem productive enough so that spokespersons for the European Union say they hope their trade talks take on a similar format.
Trump's approach to tariffs has been anything but static—shifting abruptly like a spotlight sweeping across a stage. Yet beneath the political theater lies a calculated strategy with far-reaching implications. While critics assume tariffs invariably raise consumer prices, the reality is more nuanced.
Trump's policies appear designed not just for economic leverage but as an extension of his foreign policy vision, particularly in Asia and the Western Hemisphere.
Whether this constitutes strategic brilliance or overreach is debatable, but the mechanics of tariffs—and who ultimately bears their cost—demand closer scrutiny.
The impact of a tariff hinges on market dynamics, competition and geopolitical leverage. Consider a US$100 product imported from Country X.
If the US imposes a $25 tariff, the seller faces a choice: absorb the cost by cutting their price to $75 (keeping the consumer's total at $100) or pass the expense to buyers and risk losing market share.
In competitive markets—like coffee from Colombia, Brazil, or Mexico—sellers often absorb tariffs to retain customers. But the calculus shifts when alternatives are scarce.
A monopolist, such as OPEC in the oil markets, can dictate prices precisely because competitors lack the capacity to undercut them without facing ruin.
This imbalance of power invites broader consequences: nations disadvantaged by such asymmetries may resort to political or even military retaliation, as nearly occurred during the 1970s oil crises.
Tariffs also reshape local economies. A Mexican manufacturer facing US tariffs might offset losses by raising prices for domestic consumers or slashing wages. A Canadian auto supplier could lobby for government subsidies to preserve jobs while lowering export prices.
Meanwhile, China's state-influenced exporters might reduce prices to maintain access to the elastic US market, repurposing tariff revenue for Chinese domestic projects.
Trump's tariffs align with a modern revival of the Monroe Doctrine, which asserts US hegemony in the Western Hemisphere.
Recent maneuvers, such as discouraging Chinese influence over the Panama Canal, signal that the administration views tariffs as both economic tools and geopolitical signals. The message is clear: the US will enforce its sphere of influence, and trade policy is one lever to do so.
It is possible to imagine Trump's 'super big picture' plan as a compressed version (spanning three years) of the 150-year evolution of the British Empire, beginning with Mercantilism and culminating in free trade.
At first, Trump treats the rest of the world as composed of client states, whose economies are tied tightly together with the 'mother ship', the dependent states all at first directed by force majeure to contribute to the greatness of the Metropolitan Authority.
Later on, when the dependencies have grown to maturity, a managed form of free trade emerges, and wealth becomes more widely shared.
Ultimately, outcomes will be determined by raw power—economic, military and diplomatic. While Trump's aggressive posture may yield short-term gains, inconsistency risks undermining his objectives.
China, the primary challenger to this strategy, may currently perceive his actions as domestically focused rather than existential. But if tariffs become an erratic flicker rather than a steady beam, the US could squander its leverage.
In an era where trade is war by other means, Trump's tariffs are less about economics than they are about reasserting American primacy. The question isn't whether the world will adapt—it's who will blink first.