Trump’s Impossible Trade Policy

April 24, 2025

By Dominic Pino

The premise of Donald Trump’s trade war is that other countries should face tariff rates commensurate to the extent of their “cheating” in global trade. Trump insists that this extends well beyond tariffs, which are already zero or near-zero for most goods traded between the U.S. and its major trading partners.

This is not a good way to make trade policy. It effectively cedes U.S. sovereignty over its tariff rates to the decisions made by other countries, and it’s based on the fiction that foreigners pay tariffs. Instead, tariffs are effectively a tax on American consumers. Other countries’ making decisions that the U.S. government doesn’t like is a poor reason to raise taxes on Americans.

But even if the premise of the idea was sound, its implementation is impossible. There are simply too many countries, goods, and factors to consider to ever set rates that would accurately account for what other countries do.

Professor Douglas Irwin, a trade economist at Dartmouth, ran the numbers in an article for the Wall Street Journal in February. There are about 13,000 line items on the U.S. tariff schedule, and about 200 countries in the world, so if the U.S. was really going to be precise and fair, it would need to set about 2.6 million tariff rates. That seems rather contrary to the spirit of “government efficiency” that the administration is seeking to cultivate.

If the government was actually going to set 2.6 million tariff rates, what factors would it need to consider? Trump, in a post on Truth Social, made a list of eight practices he deems to be “non-tariff cheating”: currency manipulation, value-added taxes (VATs), dumping below cost, subsidies, protective agricultural standards, protective technical standards, theft, and transshipping to avoid tariffs.

Some of these are legitimate gripes. Theft is always wrong, and there are instances when other countries’ domestic regulations block sales of U.S. goods. It would be nice if the EU got rid of its silly rules about the treatment of chicken, for example, so that U.S. chicken could be exported there. But that’s simply not worth starting a global trade war over.

Other countries could just as legitimately complain about U.S. regulations that prohibit the sale of their products here. European baby formula, for example, is effectively banned in the U.S. in part because it doesn’t meet FDA labeling regulations. This policy should be repealed because it makes Americans worse off, in much the same way that European regulations make Europeans worse off.

Other things Trump mentions aren’t trade barriers at all. He’s reviving a decades-old American complaint about VATs, that they are unfair subsidies, because they include rebates for companies that export. The rebate is not an advantage, though. It just gets companies back to neutral.

A VAT is supposed to tax all consumption that takes place within a country. It is supposed to only be paid by residents of the country levying it. A VAT is collected at each stage of production on the value-added by that stage. When a good is exported, it is consumed by the residents of a different country, so it shouldn’t be taxed, but the company that made the good has already paid taxes on earlier stages of production. To remedy that, the government rebates the taxes paid on exports.

That doesn’t give the company an advantage over American companies. It puts them on the level playing field of not paying the VAT on stuff purchased by people in other countries. In the same way, the VAT would apply equally to American or non-American goods consumed by the residents of the country levying it. There’s no advantage to domestic producers from the VAT.

It’s not just theory. Economists have studied how VATs affect trade in real life. A 2021 paper looked at VAT changes from many countries over 30 years and found that they didn’t affect trade flows in any significant way. There’s simply nothing to be mad about here.

One man’s currency manipulation is another man’s monetary policy, and it’s very difficult to determine where to draw the line in any consistent way. Trump’s complaint is especially hard to take because some of his advisers have floated the idea of U.S. currency manipulation: devaluing the dollar to make exports more competitive. If it’s cheating when other countries do it, it’s not clear why it wouldn’t be cheating when the U.S. does it.

When other countries subsidize production or “dump” goods into the U.S. market, they are taking money from their people to make things cheaper for our people. From a purely nationalistic point of view, that seems like a good deal. Even if you think this is a problem, broad tariffs won’t solve it. There are a bunch of international trade rules about subsidies and dumping and U.S. laws that allow antidumping duties on specific goods after an investigation. The U.S. could bring a bunch of cases before the WTO and use the antidumping law it already has if Trump really wants to stop this “cheating” of . . . receiving more affordable goods from abroad.

Transshipping to avoid tariffs is inevitable in a world of about 200 countries. Economic sanctions are routinely avoided in this way; see, for example, the surge in German exports to Central Asian countries right after the invasion of Ukraine led to sanctions on Russia. If outright bans on trade can be avoided, tariffs certainly can.

Going to other countries with Trump’s list of complaints will in many cases lead to U.S. negotiators being laughed out of the room. European countries that use VATs to raise between 15 and 36 percent of their revenues are not going to scrap them based on a disproven theory. America’s $2 trillion federal regulatory burden doesn’t give U.S. negotiators a leg to stand on when complaining about other countries’ domestic regulations. And why should other countries want to make trade deals with the U.S. when Trump just demonstrated that the U.S. won’t keep its word, even on deals that Trump himself signed during his first term?

There is no sophisticated plan to negotiate great trade deals or reduce other countries’ trade barriers behind the Trump administration’s chaotic implementation of its signature economic policy. The task it has set for itself is impossible, which is likely why it hasn’t really attempted to do it, instead settling for a simple formula based solely on the volume of imports and the size of the trade deficit. These facts will not be any different in early July when the tariff pause is set to expire.

Dominic Pino is the Thomas L. Rhodes Journalism Fellow at the National Review Institute and National Review.