Yesterday, Donald Trump announced a shift towards protectionism, the likes of which the world has not seen since the Great Depression.

For decades, global prosperity has been underpinned by a system of open trade without parallel in history. That system has enabled the creation of vast wealth in the Western world and lifted hundreds of millions of people out of poverty in the Global South. It has also arguably contributed to global peace, as countries have more to gain by trading than warring with one another.

At a stroke, Trump brought that system to an end. By signing an executive order last night, he imposed a base tariff of 10% on imports from nearly all nations and additional steep levies on many.[1]  The United Kingdom faces only the base rate, but many other countries were not so fortunate. For American allies Taiwan and Israel, the rates are 32% and 17% respectively. For the European Union, the rate is 20%.and for China, 54%. For Vietnam and Cambodia – where many international companies moved production in order to avoid becoming victims of a US-China trade war – the rates are 46% and 49% respectively.[2]

Trump’s moves are just the beginning of what will now become a global trade war. Although the Trump administration has suggested that other countries not retaliate, they surely will – leading to an increase in trade barriers which is likely to be catastrophic for the global economy.[3]  In the West, consumer goods will become more expensive, interest rates will rise, and jobs will be lost. Elsewhere in the world, economic models which poorer nations were using to lift themselves up will cease to function. Geopolitical instability is likely to follow in the wake of economic instability, as it so often does.

Why is Trump doing it? There are at least three theories, some more persuasive than others. The first holds that this is simply the opening gambit in an epic negotiation, one that will end with most of these tariffs being swept away. The affected countries will come to the table and offer to reshape their trading relationship in a way that is more favourable to the United States, and the world will go back to (more or less) normal.

There are a few problems with this theory. Firstly, what exactly the administration even wants from other countries is not clear. It claims to have based its tariff rate for each country on the mixture of tariff and non-tariff barriers (for instance, subsidies and taxes) that the country in question imposes on the U.S. This is why Trump calls the tariffs “reciprocal”. But if that is the case, then something as simple as VAT would count towards the administration’s calculation. Unless the European Union and other economies are going to abolish VAT, there’s not much they can do to address the administration’s grievance.

The plot thickens when we examine the numbers more closely.[4]  The tariff rate the US has imposed on other countries appears not to be based on any plausible mixture of tariffs and non-tariffs barriers. Instead, the calculation seems to be based on that country’s trade deficit with the United States, meaning that only a complete collapse in its exports to the US could satisfy Trump. Only the complete unstitching of the modern global economy could achieve that. Even if it were possible, it implies a world radically different – and poorer – than the one we now inhabit.

Another problem is that the US government lacks the administrative capacity to engage in this many trade negotiations at once. Even the crude back-of-the-envelope way in which its tariff rates have been calculated betray that. Trump’s rambling, incoherent delivery of his speech at the White House yesterday – which badly misstated numerous facts about the economy and economic history – will also do little to inspire confidence amongst either the markets or US trading partners.[5]

A second theory for why Trump is doing this is that he genuinely is seeking a major rebalance of the world economy. He has stated repeatedly that he wants to see a renaissance of manufacturing in the United States, that he believes trade amounts to other countries ripping America off, and that US consumers should be willing to bear some pain in pursuit of economic rebalancing.[6]  During his speech yesterday, he once again raised the idea of tariffs becoming a major source of revenue for the US government, implying that they are here to stay.

This theory has plenty of problems too. The economic pain which would be involved in such an adjustment would be catastrophic for the US and global economies, not just a transient period of a little pain. The resultant trade wars could easily get out of control, depressing global economic activity and destroying trust between the United States and its economic partners. There would also be numerous unintended consequences, the type which have bedevilled state economic planners throughout history.

Trump’s idea to fund the US government through tariffs also makes little sense.[7]  In his speech yesterday, Trump decried the government’s shift from funding itself through tariffs to doing so through income taxes, a move which occurred in the early twentieth century. But this move was made for a simple reason: tariffs simply cannot generate enough revenue to fund a modern state. Trump’s vision implies a dramatically smaller US state, one that would not be up to the job of containing the geopolitical instability which results from its trade war.

A third theory of Trump’s motives views this whole affair as a power play. By holding a gun to the head of both the American and global economies, he forces everyone to come to him with their cap in their hands. Both foreign countries and domestic industries will have to grovel for relief, and to receive it they will be forced to pledge their allegiance to him. In this view, tariffs aren’t really about economics. They’re about building the structures of a more autocratic state, one based on blackmail and coercion rather than consent and trust.

Already, many countries around the world are debating whether to band together to resist Trump or try to cut their own separate deals. The United Kingdom received a lower tariff rate than the EU, which UK ministers are touting as a success.[8]  But trying to negotiate with Trump separately plays into his hands because each country is weaker individually than they would be if they banded together. Such moves are also corrosive of trust between allies and threaten to plunge the world even further into zero-sum thinking.

Which of these three theories best suits events? Given the chaotic nature of policymaking in the Trump administration, there’s likely some truth in all of them. What the administration does next will depend on the reaction of other countries, and of financial markets. By adopting such a maximalist course, Trump has made it more likely that the blowback will be so intense that he will be forced to adjust. But he has also dramatically raised the potential of a global economic catastrophe if he does not.

Andrew Gawthorpe is an expert on US foreign policy and politics at Leiden University and author of the newsletter America Explained. He was formerly a research fellow at the Harvard Kennedy School, a teaching fellow at the UK Defence Academy, and a civil servant in the Cabinet Office.

Disclaimer: The views expressed in this piece are those of the authors and do not reflect the views of The Foreign Policy Centre.

Photograph courtesy of The White House from Washington, DC, Public domain, via Wikimedia Commons.

[1] The White House, ‘Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits’, April 2025, https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits/

[2] Kayla Epstein, ‘Trump’s Tariffs on China, EU and more, at a Glance’, BBC News, April 2025, https://www.bbc.com/news/articles/c1jxrnl9xe2o

[3] Daniel Flatley and Annmarie Hordern, ‘Bussent Urges Against Reliation, says ‘Wait and See’ on Talks’, Bloomberg, April 2025, https://www.bloomberg.com/news/articles/2025-04-02/bessent-urges-against-retaliation-says-wait-and-see-on-talks

[4] Tony Romm, Ana Swanson and Lazaro Gamio, ‘How Are Trump’s Tariff Rates Calculated?’, The New York Times, April 2025, https://www.nytimes.com/2025/04/02/business/economy/trump-tariff-rates-calculation.html

[5] Daniel Dale, ‘Fact Check: Trump’s False Claims About Tariffs and Trade’, CNN, April 2025, https://edition.cnn.com/2025/04/02/politics/fact-check-trump-tariffs-trade/index.html

[6] Jeff Stein and David J. Lynch, ‘Trump Aides Draft Tariff Plans as some Experts Warn of Economic Damage’, The Washington Post, April 2025, https://www.washingtonpost.com/business/2025/04/01/trump-tariffs-draft-recession-projection/

[7] Andrew Gawthorpe, ‘On Tariffs, Trump Resurrects 18th Century Economics’, America Explained, November 2024, https://amerex.substack.com/p/on-tariffs-trump-resurrects-18th

[8] Eleni Courea, ‘Why Starmer’s Trade Diplomacy May Still Bear Fruit Despite 10% Tariffs on UK’, BBC News, April 2025, https://www.theguardian.com/politics/2025/apr/02/why-starmers-trade-diplomacy-may-still-bear-fruit-despite-10-tariffs-on-uk