Tariffs and Economic Statecraft in Trump’s Second Term

President Donald Trump has implemented a sweeping economic agenda. Alongside cuts to the size of the federal government in his domestic policy, tariffs have become a cornerstone of his foreign policy. While tariffs against China might be understood as part of a national security posture of strategic competition, U.S. allies and partners have not been exempt, with Taiwan and the European Union threatened with tariffs and Canada and Mexico already subject to them. With Trump expected to announce new tariffs today, it is well worth asking what kind of economic statecraft this amounts to, and what it suggests about Trump’s objectives and plans for the future.

In both his first and second terms, Trump has been called a mercantilist because of his concern for wealth as the basis of power, and because of his related concern for the balance of trade. But any attempt to label Trump with an “-ism” is fraught, because Trump does not easily fit any labels. For example, the mercantilists of the 18th century were deeply concerned with flows of precious metals like gold and silver, but Trump is not (his decision to launch a line of gold sneakers notwithstanding). Trump is deeply concerned with emerging technologies, but the mercantilists were not. Trump is also not quite an economic nationalist, because he has been vocally opposed to industrial policies like the Biden administration’s CHIPS Act, which provided funding to strengthen incentives to produce semiconductors in the United States, even as he has ordered state intervention to curtail free trade.

What defines Trump’s economic statecraft is, quite simply, that he thinks of countries like corporations: acting on the basis of interest and defining interest on the basis of wealth (or revenue, if you prefer). He is skeptical of continuing U.S. support for Ukraine because he thinks it costs too much. He wants Ukraine to agree to a deal that will give the United States access to its mineral resources as a form of repayment for U.S. security assistance. He has made a highly controversial proposal for the United States to take control of Gaza and engage in real estate development, claiming that it would become the “Riviera of the Middle East.” He has expressed doubts about U.S. support for Taiwan because he thinks it involves the United States acting like an insurance company. He has engaged in the large-scale deportation of undocumented migrants but has also offered a path to citizenship to anyone who can pay $5 million. He thinks he can use tariffs to coerce other countries into making political concessions because tariffs will hurt their bottom line. All of these examples point to a habit of thinking of politics as business, and the position of commander-in-chief as a Chief Executive Officer.

Economic statecraft is typically thought of as using wealth to achieve political objectives; but as Trump describes it, his brand of economic statecraft flips that formula, and involves using political power to generate wealth for the United States. This logic was at play during a press conference that Trump held on March 3, 2025, with C.C. Wei, the Chair and Chief Executive Office of the Taiwan Semiconductor Manufacturing Company (TSMC). Accompanied by Secretary of Commerce Howard Lutnick and “A.I. and Crypto Czar” David Sacks, Trump proudly announced TSMC’s planned investment of $100 billion in the United States as an example of the power of tariffs:

“It’s the incentive we’ve created or the negative incentive. I mean, it’s going to be very costly for people to take advantage of this country. They can’t come in and steal our money and steal our jobs and take our factories and take our businesses and expect not to be punished, and they’re being punished by tariffs. It’s a very powerful weapon that politicians haven’t used because they were either dishonest, stupid, or paid off in some other form.”

In addition to his characteristic airing of grievances against foreign companies and former U.S. presidents, Trump demonstrated his belief in what one might call “negative economic statecraft”: using the threat of pain to get companies to make decisions that support his economic agenda. The economist Thomas Schelling would have called this a form of coercive diplomacy, specifically compellence. And yet, as scholars who invoke Schelling’s work have pointed out, coercive diplomacy is not only about issuing the threat of pain for failing to comply, but also about providing the assurance that firms that do comply will not experience greater pain. This means that it is now incumbent on the Trump administration to create the right kind of business environment for foreign companies to operate in the United States.

Even if Trump’s economic statecraft does prove to be effective as coercive diplomacy, that does not guarantee that it will be effective as economic policy. If a trade war ensues and countries raise retaliatory tariffs on the United States (as Canada has), then U.S. exports (and U.S. sales and revenue) will fall. Inflation, one of the bread-and-butter issues that became a political liability for Biden, is likely to rise under Trump as well. Trump is betting that by raising the cost of producing goods overseas and importing them into the United States, he will convince both U.S. and foreign companies that it makes more sense to relocate production to the United States itself. But if the cost of living rises, then companies will have to raise wages as well, and it is not clear that the benefit of avoiding tariffs would be enough to compensate for the higher cost of labor. The result of all of this might be that the United States experiences a revival of manufacturing; but it might be that the bills keep growing for U.S. consumers, while the jobs do not. If Trump thinks of countries like corporations, his maneuvering for a competitive advantage is likely to create a volatile business environment; and no one can be sure that the United States will stand to gain, much less prevail.

James Lee is an assistant research fellow/professor at the Institute of European and American Studies at Academia Sinica in Taiwan, and an affiliated researcher at IGCC.

Thumbnail credit: Paul Teysen (Unsplash)