Dr. Bruno S. Sergi & Dr. Mona Pearl
In 2024, goods from Canada, China, and Mexico accounted for over 40% of US imports. In his efforts to renegotiate trade agreements and strengthen economic stability, President Trump has frequently targeted the US’ top trading partners, proposing 10% tariffs on Chinese goods and 25% on those from Mexico and Canada. Does this move reflect his strategy of using tariffs as a negotiating tool to improve US trade relations by incorporating corporate tactics into government operations?
Historically, the Federal Reserve, established in December 1913, and the Federal Income Tax, introduced in February 1913, have been instrumental in shaping the US economy, reducing tariffs over time. Today, Trump's proposal to rely heavily on tariffs mirrors corporate budgeting strategies that tightly control and self-sustain revenue generation. In fact, CEOs often prioritise efficiency, profitability, and growth, but when transitioning to political leadership, they may struggle to balance these principles. This can result in a top-down management style that overlooks democratic processes. Relying heavily on data can oversimplify complex issues and ignore important qualitative factors such as social impact and ethical considerations. Trump, a successful CEO-turned-politician must balance efficiency with democratic engagement, prioritise public welfare, and foster collaboration. Recognising the limitations of data-driven decisions is vital to avoid undermining public trust and social cohesion.
Tariffs as a means to many ends
Trump has made tariffs a key component of his administration’s economic strategy, describing tariffs as the most beautiful word in the dictionary. This perspective aligns with a broader narrative in which tariffs are viewed as a protective measure for domestic industries, a means to reduce trade deficits, a source of government revenue, a tool for retaliatory trade measures, and a mechanism to promote fair trade practices. Tariffs primarily aim to shield local businesses from foreign competition by increasing the cost of imported goods. This strategy encourages consumers to opt for domestically produced items, thereby supporting local jobs and industries. Additionally, by making imports more expensive, tariffs can help reduce a country's trade deficit, which is the imbalance between exports and imports. This is highly relevant to the United States, where trade deficits have been a point of contention.
Moreover, tariffs serve as a source of revenue for the government, as they are taxes levied on imported goods. This revenue can be utilised for various public expenditures. In international trade, tariffs can also function as retaliatory measures, allowing a country to respond to perceived unfair trade practices by other nations. This aspect of tariffs is particularly significant in ongoing trade disputes, where countries may impose tariffs in response. The relationship between tariffs and the stock market, especially the NASDAQ, is shaped by the dominance of technology companies, which are less impacted by tariffs due to their reliance on intellectual property and services. Major companies like Apple, Amazon, and Microsoft help buffer the stock market from the adverse effects of trade policy changes.
Trump has emphasized the importance of the External Revenue Service (ERS) in collecting tariffs. He plans to charge those who profit from trade with the US and start paying tariffs. This policy was enacted during his first term in January 2017 to boost the US economy by protecting American industries, lowering trade imbalances, and encouraging domestic production. Trump's "America First" agenda prioritises domestic concerns over international ones, as seen in his call to impose a 25% tariff on Canada and Mexico starting March 1st. These tariffs on North American trade will significantly affect the large volume of trade and the importance of supply chains, which make up around 50% of intraregional trade. He announced an additional 10% tariff on Chinese goods for sending fentanyl and also threatened to impose tariffs against Russia and other participating countries if a deal isn't made soon to end the war in Ukraine.
Can America Afford its Tariffs?
Although Trump argues that tariffs could drive economic growth in the US, economists caution that they may instead negatively impact the economy. During Trump's first administration, tariffs led to mixed results, with varied effects on different sectors of the economy. Notably, they did not significantly reduce the US trade deficit. The US Bureau of Economic Analysis reported that tariffs have not been enough to shift the longer-term trajectory of the nation's international economic transactions. The United States continues to grapple with a substantial current account deficit, which reached a record high of $310.9 billion in the third quarter of 2024. This deficit is driven by a combination of factors, including increased imports of capital goods and consumer products, alongside a widening primary income deficit. Despite efforts to address these imbalances, the deficit remains a significant challenge for the US economy.
Tariffs on goods from countries such as China would aim to boost US economic growth and reduce the trade deficit. He might argue that tariffs would protect key US industries, boosting GDP by encouraging domestic production and innovation. Presenting tariffs as a national security measure would help maintain a strong manufacturing base and reduce dependence on foreign countries. However, during Trump's first term, the tariffs imposed on Chinese goods increased prices for various consumer products. Research indicates that the tariffs could cost consumers an additional $2,500 to $7,600 annually, depending on their purchasing habits and the goods they bought. Major US retailers warn that tariffs could lead to higher retail prices and retaliatory measures from other countries, potentially causing additional tariffs and trade wars. This can hurt US exports, stifle global trade, and potentially slow the US economy. Economists warn that prolonged tariff wars can reduce investment, cause market instability, and even push the economy into a recession.
Trump's second term may see a broader implementation of tariffs, targeting also major economic players like Europe and emerging BRICS nations to reduce the trade deficit and level the playing field for American manufacturers. The targeting may also extend to recently admitted states, including, but not limited to, Egypt, Ethiopia, Iran, and the UAE as a strong stance against any attempts by these nations to undermine the US dollar's dominance in global trade. Consequently, a new round of tariffs may strain the United States' relationships with both the Global North and the Global South.
At Davos, Ursula von der Leyen highlighted the deep economic ties between Europe and the US, noting that two-thirds of American economic activities abroad are in Europe. European companies in the US provide 3.5 million jobs, and an additional million American jobs are linked to trade with Europe. Transatlantic supply chains are interconnected, with European components in American aircraft and American-made medicines relying on European materials. Europe imports twice as many digital services from the US as Asia-Pacific, while the US supplies over 50% of Europe’s liquified natural gas (LNG). The trade volume between the two regions totals 1.5 trillion euros, making up 30% of global trade.
With Trump also threatening trade wars, the International Monetary Fund (IMF) has revised its predictions for international trade volume downwards, with export economies like Germany potentially one of the biggest victims. The IMF predicts steady global economic growth of around 3.3% in 2025 and 2026, with India and China being the biggest growth drivers. The Asia-Pacific region is anticipated to continue expanding at 6.5%, while China’s growth is expected to be up to 4.6%. However, growth in the European Union is expected to be slower due to high energy prices and potential US import tariffs. The IMF's chief economist, Pierre-Olivier Gourinchas, warns that Trump's plans to slash regulations on business could boost potential growth in the medium term if they remove red tape and stimulate innovation. However, he cautions that excessive deregulation could weaken financial safeguards and increase financial vulnerabilities, putting the US economy on a dangerous boom-bust path.
What Can Be an Effective Potential Policy Compromise?
Trump's inauguration speech reflects his "America First" approach, emphasising domestic issues and promoting American interests over international concerns. The absence of references to foreign countries suggests a desire to pull back from extensive foreign commitments, reflecting a more insular, nationalist stance. Trump's speech avoids positioning the US as the leader of a coalition in the Global North, indicating that he is not interested in maintaining or strengthening traditional alliances. Instead, he emphasises US dominance on its own terms, focusing on its economic and geopolitical advantages, possibly at the expense of traditional alliances and international responsibilities. These elements in Trump's speech reflect a broader strategy of "America First," signaling that his administration will favor national self-interest and potentially reduce US involvement in global leadership roles. This rhetoric often leads to a shift away from multilateral diplomacy in favour of more isolated or independent foreign policies.
Trump's "America First" tariffs aim to reshape global trade norms and assert US economic power, challenging international institutions like the WTO and reshaping trade agreements in America's favor. The primary goal is to achieve economic dominance by wielding significant power over global trade, markets, and production through economic policies, technological advancements, and resource control. The economic nationalism policy aims to reduce the US trade deficit, revitalise manufacturing, and restore jobs, particularly in steel, aluminum, and automobiles. Trump intends to convey that unfair trade practices will be confronted, with tariffs representing US strength against a "rigged" global trade system.
Trump may consider more effective bilateral agreements to achieve leadership in the Global North and foster domestic economic growth rather than relying solely on tariffs. This strategy could address intellectual property rights, market access, and industrial subsidies while maintaining strong relations with trading partners. By investing in domestic innovation and education, the US could enhance its competitiveness in high-tech industries like renewable energy, artificial intelligence, and biotechnology. Focusing on trade negotiations and strategic investment could provide a sustainable path for US leadership, instilling hope for a positive future in international trade.
In Pursuit of Leadership or Dominance?
Trump's transactional leadership, characterized by "America First" policies, emphasizes US interests over multilateral cooperation and reflects skepticism toward traditional alliances. This may be seen as promoting a more isolationist stance, where the US seeks self-sufficiency and reshapes international relationships for its benefit. Trump's leadership style proposes incorporating business strategies into government functions by emphasizing outcomes over procedures to increase public sector effectiveness.
The idea that integrating business strategies into government functions will improve performance may prove misleading. Governments, unlike multinational enterprises (MNEs), have a mandate to serve the broader public good, which often involves investments that cannot be easily quantified in purely financial terms. Governments need to prioritise initiatives like building critical infrastructure, addressing complex social issues, facilitating education, and creating a stable environment. While essential for a thriving society, these endeavours often yield returns that are difficult to quantify in purely financial terms. Governments are tasked with ensuring equal opportunities for all citizens, even those not considered profitable from a business standpoint. This often involves investing in programs and services that serve vulnerable populations or address market failures, where businesses may be hesitant due to low financial returns.
The United States, and any nation, is not a MNE, and equating government functions solely with business metrics risks neglecting the fundamental purpose of government: to serve the collective interests of its citizens and create a society where everyone has the opportunity to thrive. A balanced approach is necessary, leveraging efficiency where appropriate but never losing sight of the fundamental mission of government to serve the public good, even when a simple return on investment (ROI) cannot appropriately measure that good.
Tariffs could impact the US economy, and restructuring the government as a private corporation with measurable success can modernise the sector. However, this presents an inward approach; collaboration, on the other hand, represents an outward approach. Future generations will consider the implications of Trump's emphasis on reducing trade deficits and foreign economic influence as a transformative approach. Discussions may focus on missed collaboration opportunities and protectionism's long-term impact. Policymakers have to determine whether a more integrated economy with multilateral agreements outperforms a fragmented, self-sufficient approach while balancing national interests with the need for collaboration in a globalized world.
While Trump's leadership style may project an image of power, rapid transformation, and dominance, authentic leadership is defined by the ability to inspire and attract followers. John C. Maxwell famously stated, “He who thinks he leads, but has no followers, is only taking a walk." True leadership is defined by the ability to inspire and engage others. In leadership, it's not enough to simply hold a position or act as if you're in charge; you must cultivate trust, influence, and support from your team or followers. If no one is willing to follow your vision or direction, you’re not genuinely leading—you're merely going through the motions. This highlights that genuine leadership is rooted in influence and the capability to unite others around a common goal.
Bruno S. Sergi, PhD, teaches and researches the economics of emerging markets. At Harvard, he is a Faculty Affiliate at the Harvard Center for International Development, an Associate at the Davis Center for Russian and Eurasian Studies, and an Associate at the Harvard University Asia Center. He is the editor of Cambridge Elements in the Economics of Emerging Markets (Cambridge University Press). Co-author of Global South Leadership Style: Strategies for Navigating Emerging Economies (Cambridge University Press, December 2024). https://www.iq.harvard.edu/people/bruno-s-sergi
Email: bsergi@fas.harvard.edu
Dr. Mona Pearl teaches international business, particularly the economic, geopolitical, social, and cultural aspects across borders and cultures. Her research explores the relationship between multicultural leadership and individual differences in navigating global environments. She has worked with corporations, governments, NGOs, and emerging market ventures on a global scale, forging strategic structures for initiatives worldwide. Co-author of Global South Leadership Style: Strategies for Navigating Emerging Economies (Cambridge University Press, December 2024) and a contributor to a book series on sustainable development goals series focusing on the global south and the global north by Springer Nature (February 2025). https://www.linkedin.com/in/monapearl/
Email: mona.pearl@wilkes.edu
Tel. 312 446 8910
