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US-China relations
OpinionWorld Opinion
Nancy Qian
Opinion
Nancy Qian

Trump’s latest trade offensive is more about power than economics

Tariffs can be a double-edged sword, but the administration has decided to use economic pressure to achieve broader strategic objectives

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Hats supporting Donald Trump are displayed for sale near the New York Stock Exchange on February 10. Photo: Getty Images via AFP
Nancy Qian
Nancy Qian, professor of managerial economics and decision sciences at Northwestern University’s Kellogg School of Management, is a co-director of Northwestern University’s Global Poverty Research Lab and the founding director of China Econ Lab.
The opening salvoes of US President Donald Trump’s trade war have sent shock waves around the world. Over the past three weeks, his administration has broken with decades of free-trade orthodoxy, threatening to impose tariffs not only on strategic adversaries like China but also on long-standing allies like Canada and Mexico. Even Denmark – a Nato member and steadfast US ally – has found itself in Trump’s crosshairs.

Trump’s actions have made many in the United States and around the world wonder: what exactly are tariffs and how do they affect global trade? Simply put, tariffs are taxes on imported goods. If a Chinese manufacturer wants to sell shoes in the US, the American government can impose a tariff. If a US retailer pays US$100 for a pair, then a 10 per cent tariff, like the one that Trump recently imposed on goods from China, means that the retailer must pay the US government US$10.

Those US$100 shoes now cost US$110. Who pays the extra US$10? When Trump raised tariffs on Chinese imports during his first term, American importers bore most of the cost, particularly when they could not find alternative suppliers. Consequently, retail prices remained relatively stable, at least in the first year.

But the picture becomes more complicated when tariffs remain in place for an extended period. US importers cannot absorb the added costs indefinitely and may go out of business unless they find new suppliers or pass those costs onto consumers, who may then need to cut back on spending.
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