Deconstructing the Bluff

U.S. President Donald Trump’s tariffs, unveiled in Washington, D.C. on April 2, are supposed to force a strategic realignment of global trade with the U.S. at its center. It’s a fallacious attempt to project an image of economic invulnerability, akin to a high-stakes poker player feigning four aces when he has none.

Rather than succumbing to Washington’s tariffs and sanctions, it is time for the international community to adopt a coordinated, strategic response designed to quickly call Trump’s economic bluff.

Central to the weakness of Trump’s hand is the interplay between tariffs, inflation and currency devaluation–a dynamic downward economic spiral that will ultimately end Trump’s protectionist putsch.

A catalyst for economic instability

By directly raising the cost of imported goods, tariffs function as a regressive tax on consumers and businesses. When combined with a devalued U.S. dollar, these costs will multiply, creating a feedback loop that exponentially exacerbates inflationary pressures. To understand this, consider the mechanics:

Tariffs increase import costs. A 25-percent tariff on $300 billion of imports (as seen during the 2018-19 U.S. trade war against China) will immediately raise prices for affected goods, from electronics to machinery.

What’s worse, dollar devaluation amplifies costs. If the dollar weakens, importing the same goods requires more dollars per unit of foreign currency. For example, a 10-percent weaker dollar increases the dollar price of a 1,000-yuan made-in-China product from roughly $150 to $166.

The combined effect is multiplicative. A 25-percent tariff “plus” a 10-percent devaluation of the dollar results in a 37.5-percent price increase for imported goods in the U.S.

This “double penalty” will ripple through supply chains, raising production costs for domestic manufacturers reliant on imported components and fueling broader inflation.

The 2018 tariffs that imposed duties on $360 billion worth of Chinese goods offer a case study: Researchers at the Federal Reserve Bank of New York estimated that the tariffs increased U.S. consumer prices by 0.3 percent annually, but disproportionately affected lower-income households.

Meanwhile, retaliatory tariffs from China hit U.S. agricultural exports, particularly soybeans, hard, which then plummeted by 75 percent in 2018. Crucially, this occurred without substantial dollar devaluation. Had the dollar weakened during this period, inflationary pressures would have been far more severe.

The illusion of unilateral power

Trump’s approach hinges on the assumption that the U.S. possesses a unilateral economic leverage that suffices to dictate terms to other nations. This illusion is predicated on a superficial assessment of the U.S. market’s importance, neglecting the intricate interdependencies that characterize contemporary global trade.

The imposition of sweeping tariffs, ostensibly designed to “level the playing field,” fails to account for inevitable retaliatory measures, including those targeting the U.S. service sectors where the country holds sizable trade surpluses. Moreover, such policies risk inflicting severe disruptions on global supply chains, with cascading economic consequences.

Historically, the U.S. has unilaterally wielded its economic might. However, the rise of interconnected global economies, exemplified by China’s rise and integral role in global supply chains, has fundamentally altered this dynamic.

In recent years, China’s made headway in sectors like semiconductors, AI, quantum computing, green energy and electric vehicles. Today, the country dominates renewable energy production, accounting for 80 percent of global solar panel manufacturing and over 60 percent of wind turbine components. This shift underscores the decline of U.S. unilateralism and the rise of a new economic order, based on a shared belief and need for nations to be secure, have a path to development, and be respected as sovereign nations.

The weakness of the “four aces” narrative

Trump’s reliance on simplistic metrics, including stock market performance and trade deficits, to gauge economic success reveals a fundamental misunderstanding of basic economics, which was clearly demonstrated in his one-size-fits-all tariff formula, which has surprised some unsuspecting penguins.

His susceptibility to television-mediated narratives and acute sensitivity to public approval ratings further underscores the naivety of his attempts to assert economic dominance.

In terms of why Trump favors tariffs, the wizard behind the curtain in this case is Robert Lighthizer, Trump’s U.S. trade representative in his first presidential term, who outlined a master plan 12 years ago stating how first, tariffs would force manufacturers to relocate to the U.S., and a devaluation of the dollar by 30 percent would then make American products more competitive overseas.

While it doesn’t make any economic sense, the idea of collecting and allocating tariff funds to industries and individuals appealed to Trump.

Neither are concerned about what a 30-percent devaluation would do the dollar, as a trusted stable trade instrument, or the downstream effects to U.S. Treasury rates or the federal deficit.

As an example of the destructive nature of these ill-conceived ideas, in the 2018-19 trade war, the Trump/Lighthizer tariff approach saw the S&P 500 stock market index rise initially, followed by a recession in U.S. manufacturing and a 20-percent  increase in U.S. farm bankruptcies, despite billions of dollars in collected tariff funds being funneled to them.

In contrast, today, as the U.S. tries to assert power through sanctions and tariffs, the China-proposed Belt and Road Initiative (BRI), which aims to boost connectivity along and beyond the ancient Silk Road routes, has reshaped global infrastructure, galvanizing nearly $1 trillion in investment across more than 150 countries over the last 10-plus years. Similarly, the Regional Comprehensive Economic Partnership (RCEP)–a free trade pact covering 15 Asia-Pacific economies and accounting for 30 percent of global GDP–is creating a stable reliable alternative to reliance on U.S. markets. BRICS Plus (a mechanism of cooperation aimed at enhancing dialogue with the countries that were not part of the BRICS group of emerging economies–Ed.) has become a positive beacon attracting new members from around the world, as it contemplates new trade and development mechanisms.

These advances clearly signal a structural global shift toward decentralized supply chains and economic power.

A coordinated response

A strategic response from the international community to Trump’s tariffs should be multi-pronged.

The international community should take multilateral tariff countermeasures. Coordinated tariffs on U.S. exports like automobiles, 25 percent of which go to Canada and Mexico, could accelerate the pain in politically sensitive sectors.

Supply chain diversification should be increased. The European Union’s 300-billion-euro ($328-billion) Global Gateway initiative and the Association of Southeast Asian Nations (ASEAN)’s digital economy integration (projected to reach $1 trillion by 2030) exemplify efforts to reduce U.S. dependence by creating supply chain redundancies.

More financial alternatives should be used. The Asian Infrastructure Investment Bank (established in 2015 under China’s initiative–Ed.) and the New Development Bank (established by the BRICS countries in 2015–Ed.) are alternatives to the proscriptive lending policies of the World Bank and International Monetary Fund.

The World Trade Organization (WTO) should be reinvigorated. A coalition of 125 nations could remove the U.S. from the WTO, thus allowing it to continue its role as an arbiter of trade relations.

Since Barack Obama’s presidency, successive U.S. administrations have refused to allow new WTO appellate judges to be seated. Without appellate judges there can be no final rulings, a fact that has crippled its effectiveness.

While it would drastically affect the U.S., in essence isolating it as a rogue economic power, it might be the wakeup call Washington so badly needs.

The long-term implications

Trump’s tariff policies are unsustainable, conflating short-term political theater with long-term economic strategy. A coordinated international response would not only expose their weakness but also accelerate the transition to a multipolar world.

By 2030, China’s digital economy is expected to exceed $16 trillion, while the RCEP and BRI will anchor alternative trade ecosystems. In this landscape, U.S. unilateralism will become obsolete.

The international community must act decisively. Tariffs are not a sign of strength but a symptom of decline–one that inflation and devaluation will ruthlessly expose. The future belongs to cooperation, not coercion.

It is therefore time to draw a line by coordinating reaction to U.S. tariff responses and call Trump’s bluff. Doing so will accelerate the new era of multipolar cooperation and mark the demise of Washington’s brand of Neo-colonial American Exceptionalism.

The author is a senior fellow at the Center for International Business Ethics at the University of International Business and Economics, founding partner of the Center for China and the World at City University of Macau, and a senior fellow at the Beijing-based Taihe Institute. He is also an independent economic and political affairs commentator.