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Opinion Ross Douthat

The Theories Behind the Trump Shock
April 5, 2025
President Trump outdoors with a background of flags and a MAGA cap
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Credit...Damon Winter/The New York Times

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Ross Douthat By Ross Douthat
Opinion Columnist

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Places: Global Update, and we’ll send our latest coverage to your inbox. There are two related theories of what Donald Trump’s dramatic revision
of the global trade system is intended to accomplish.

First, the goal is to revitalize American manufacturing, our capacity to
build at home and export to the world. The global free trade system that
took shape in the late 20th century served the American empire and
American G.D.P. but at the expense of America’s earlier role as a manufacturing powerhouse — and because manufacturing jobs were such an important source of blue-collar male employment, at the expense of the working-class social fabric.

Meanwhile, over time, our manufacturing base didn’t just move overseas,
it moved into the territory of our greatest rival, the People’s Republic
of China. So rebuilding industry in America has two potential benefits
even if it sacrifices some of the efficiencies offered by global trade.
Factory jobs fill a particular socioeconomic niche that’s been filled
instead by drugs, decline, despair. And having a real manufacturing base
is essential if we’re going to be locked into great power competition
for decades to come.

Under this theory, though, it would seem like tariffs would be most
effectively deployed against China, countries in China’s immediate
economic orbit, and developing countries that are natural zones for outsourcing. But the Trump administration has deployed them generally,
against peer economies and allies. The policy seems much more sweeping
than the goal, the potential damage to both growth and basic
international comity too large to justify the upside.

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Which is where the second argument comes in — that this policy is about fiscal deficits, not just trade deficits and manufacturing. The same
global system that made America a net importer also enabled us to borrow immense sums, but we are reaching the point where that borrowing cannot
be sustained, where interest rates on the debt will crush our
policymaking capacities even if there isn’t an overall flight from the dollar.

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Here tariffs serve several purposes. Most straightforwardly they
generate revenue without striking the kind of grand bargain on Medicare
and taxes that the two parties are just too polarized to make. (The only
way a Republican president can preside over tax increases is to
implement them unilaterally while insisting that they will fall mostly
on foreigners.)

Secondarily, if they reduce growth, they also encourage a flight to
safety in Treasury bills, which reduces the interest rate on government
debt (something that’s happening already).

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Finally, the trade war creates an opportunity for a larger revision of
the global economic system, in which other countries agree to
renegotiate the terms of U.S. debt in exchange for more favorable
trading terms. (The often-invoked antecedent is the “Nixon Shock,”
Richard Nixon’s decision to put an end to the Bretton Woods financial
system in 1971 and forge a new financial order.)

You can find a version of this program in a paper from late 2024, “A
User’s Guide to Restructuring the Global Trading System,” by the
economist Stephen Miran, who not coincidentally now chairs Donald
Trump’s Council of Economic Advisers. Miran’s arguments are not the
source of Trump’s longstanding tariff fascination, obviously — but they
are a useful road map to understanding what the people around the
president think they’re doing by putting Trumpism into practice.

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Now for my own view. I think trying to reshore some manufacturing and
decouple more from China makes sense from a national security
standpoint, even if it costs something to G.D.P. and the stock market.
Using revenue from such a limited, China-focused tariff regime to pay
down the deficit seems entirely reasonable.

I am more skeptical that such reshoring will alleviate specific male blue-collar social ills, because automation has changed the industries
so much that I suspect you would need some sort of social restoration
first to make the current millions of male work force dropouts more
employable.

And I am extremely skeptical of any plan that treats pre-emptive global disruption as the key to avoiding a deficit crisis down the road. The “instigate a crisis now before our position weakens” has a poor track record in real wars — I don’t think trade wars are necessarily different.

The “Nixon shock” was forced upon his presidency to a degree that this shock is not being forced on Trump — and it took a very difficult
decade, not just a difficult few months, before the U.S. economy began
to clearly rise again. In the current environment, a Trump presidency
that produces recession or stagflation is very unlikely to have a
successor eager to see Trump’s trade policy through. And meanwhile China stands ready to welcome nations that prefer to bandwagon against us
rather than coming to terms.

Miran, in his crucial paper, seemed to partially agree with my aversion
to crisis, suggesting that any sweeping tariff system be phased in
gradually, with steps to “mitigate any adverse consequences” and
potential “impacts of such a system on global markets.”

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But the choice has been made, as once before by a Republican
administration, for shock and awe instead. I hope this gamble has a
better end.

More on Trump’s t

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