Trade Wars and the Future of Conservative Geoeconomics

As Jonathan Burks’ excellent paper notes, a consistent throughline of the second Trump term has been the use of tariffs to disrupt the established economic order. Since January, the Administration has imposed or threatened tariffs on all trading partners, arguing that the United States is being treated unfairly and that tariffs can help revitalize U.S. manufacturing and generate revenue. 

This paper agrees with the Administration that aspects of the current system warrant disruption and that measures to ensure fair competition for U.S. manufacturers are justified. However, it contends that overly broad tariffs risk major harm to the economy, including to domestic manufacturing, and that a targeted tariff strategy combined with supportive domestic policies would be more effective. 

Trump Administration Trade Policy 

Since January, the Administration has implemented or threatened tariffs in three main buckets: 

• A universal baseline tariff (UBT) of 10 percent, which would apply to almost all goods regardless of origin. According to the Administration, unfair trade practices abroad—such as government subsidies or other nonmonetary barriers—consistently disadvantage U.S. manufacturers relative to foreign competitors. In their view, a uniform 10 percent tariff would help rebalance the global trading system and create a more level playing field for American industry, while also generating revenues.

• Country-specific tariffs on 57 countries, ranging from 10 percent to 50 percent, based loosely on a formula that considers each country’s trade deficit in goods with the United States. The goal is to use these tariffs as leverage to negotiate changes in foreign trading practices—particularly those that contribute to the U.S. trade deficit. For example, trading partners could reduce their reciprocal tariffs by agreeing to lower tariffs on U.S. products, eliminate non-tariff barriers to U.S. exports, or increase their purchases of American goods.  The Administration has announced framework deals with several countries that would incrementally lower country-specific tariffs in exchange for concessions.¹ 

• Product-specific tariffs imposed under Section 232 of the Trade Expansion Act of 1962, which authorizes the president to impose tariffs on specific products if those imports “threaten to impair” U.S. national security. President Trump used his authority under Section 232 to increase tariffs on steel and aluminum imports as well as autos and auto parts. The Administration has also initiated new Section 232 investigations with regard to multiple other imports and their derivative products including: copper; timber and lumber; semiconductors and semiconductor manufacturing equipment; pharmaceuticals and pharmaceutical ingredients; trucks; processed critical minerals; commercial aircraft and jet engines; polysilicon; and drones. 

State of U.S. Manufacturing and Competition with China 

A central focus of each prong of the Administration’s tariff strategy is supporting U.S. manufacturing. While manufacturing output has remained relatively flat over the past two decades, employment in the sector has declined sharply since 2000 and U.S. manufacturing exports have fallen by 14 percent since 2013. 

The causes of this decline are complex. U.S. manufacturers benefit from a strong domestic market, low energy costs, and advanced technology. However, they also face significant challenges, including high construction and labor costs, lengthy permitting processes, and a heavy regulatory burden. Abroad, U.S. manufacturing exports confront numerous barriers such as high tariffs, regulatory obstacles, weak consumer demand in key markets, and a strong U.S. dollar. 

A significant factor, however, is competition from China’s state-driven economy. China’s vast (and for many years, low-cost) labor force, rapid technological adoption, large domestic market, investments in infrastructure, and development of dense industrial clusters have provided it with major competitive advantages. Critically, these advantages were reinforced by aggressive state intervention and subsidies, overinvestment, widespread intellectual property theft, foreign ownership restrictions, licensing requirements, high tariffs, and other trade barriers, frequently in contravention of its international commitments. 

The end result is that Chinese manufacturing now plays an outsized role in global supply chains. In 2022, China represented about 18 percent of global GDP, but it represented 32 percent of manufacturing value added. 

By leveraging industrial overcapacity and extensive subsidies, Chinese companies can sustain production at levels far beyond domestic or global demand, leading to persistent oversupply in key sectors such as steel, aluminum, certain industrial chemicals, solar panels, and electric vehicles. This oversupply often results in dumping, which undermines U.S. manufacturers who operate in a market-oriented system. In addition, China’s industrial policies distort global trade flows and erode fair competition, particularly in emerging markets where Chinese companies are increasingly displacing U.S. and other Western companies through state-backed financial support and preferential access to inputs, rather than market-driven successes. The cumulative effect is a global playing field shifted toward China’s state-oriented economic model, with serious implications for U.S. industrial resilience, workforce opportunities, and long-term technological leadership. 

These policies also encourage an overreliance on Chinese products, including those critical to U.S. national and economic security, undermining the security and resilience of U.S. supply chains. For instance, China is a major supplier of pharmaceutical precursors and dominates the global supply of processed strategic and critical minerals (such as gallium, lithium, and cobalt) despite producing only a small share of the raw materials. It also accounts for nearly 90 percent of global rare earth element refining. Additionally, the U.S. agriculture sector depends on China for key inputs, including ingredients for crop protection products, animal feed vitamins, and other essential goods. 

U.S.-headquartered companies began diversifying away from China in the mid-2010s, as evidenced by China’s decreasing share of U.S. imports and foreign direct investment (FDI). However, until recently, the diversification process has been slow and shallow, focused on a few countries (mainly Mexico and Vietnam) and sectors, largely in the assembly segment. 

More concerted action by the Administration and Congress to address unfair competition from China would help level the global playing field for U.S. manufacturers, encourage investment in high-quality, market-based production, and support more resilient and secure supply chains. 

Impact of Tariff Policies 

Targeted tariffs can play a role in some circumstances  in leveling the playing field and persuading other countries to address unfair trading practices.  Overly broad tariff policies, however, could aggravate the challenges facing U.S. manufacturers by, among other things, raising the costs of inputs from manufacturing. Because 56 percent of U.S. imports are inputs for manufacturing, broad tariffs hit manufacturing companies first. They also expose U.S. manufacturing exports to high retaliatory tariffs or voluntary boycotts, making U.S. exports less competitive in overseas markets. Moreover, uncertainty over tariffs is making it harder for companies to predict costs, discouraging capital investment in manufacturing. 

A broad tariff strategy also runs the risk of advantaging Beijing by creating incentives for countries to expand their ties with China, already a multi-decade trend: two-thirds of countries now have more trade with China than with the United States, a role reversal from three decades ago. When broad U.S. tariffs raise costs or limit access to the American market, other countries may respond by deepening trade and investment relationships with China, which often sweetens the pot through industrial subsidies and preferential market access. 

Targeted Use of Tariffs 

In lieu of a broad tariff strategy, the administration could instead support a competitive U.S. manufacturing sector with a two-pronged approach. 

1. Adopt measures to reduce the high cost of production and enhance competitiveness. The Administration took an important step in advancing U.S. competitiveness by securing legislation to extend the 2017 corporate tax reforms, which leveled the playing field between the U.S. and other advanced markets.  The Administration could further advance U.S. manufacturing by working to pass bipartisan legislation to streamline regulatory requirements for building facilities and infrastructure—particularly through permitting reform.  Policymakers should also modernize and expand education and training programs to build the pipeline of skilled talent needed for long-term manufacturing growth. 

2. Implement targeted, time-limited tariffs to bring other countries to the negotiating table to address policies that disadvantage U.S. manufacturers. Rather than spreading efforts across a broad array of trade disputes—many of which have limited relevance to manufacturing competitiveness—U.S. negotiators could focus on the central challenge of competition from China. As tariffs draw key trading partners to the table, the United States should use that leverage to build a coordinated response among key allies to counter unfair Chinese trade practices. This effort could include: 

   • Harmonizing export control regimes     

   • Establishing strong, aligned investment screening standards comparable to the Committee on Foreign Investment in the United States (CFIUS) 

   • Enforcing strict rules of origin to limit Chinese content and investment

   • Coordinating tariff policies on Chinese imports to persuade China to abandon unfair trade policies. 

Some of these recommendations, such as enforcing strict rules of origin and coordinating tariff policies, could be directly addressed with individual trading partners in the ongoing bilateral trade negotiations. Others, such as harmonizing export controls and establishing strong, aligned investment screening standards, should be approached with a broader group of like-minded economies.  The Administration is right to confront unfair trade practices, which pose serious challenges to U.S. manufacturing. However, a broad tariff strategy risks harming the very sector it aims to support by increasing input costs, inviting retaliation, and pushing trading partners closer to China.  A alternative approach would pair domestic reforms—such as lowering production costs and enhancing competitiveness—with targeted, time-limited tariffs designed to rally international partners around a coordinated response to China’s trade distortions.