The bigger picture is so much more than tariffs. It is independence, security, and the ability of the U.S. to protect itself and its allies.
Why this topic?
Ever since President Trump opened Pandora’s box on “tariffs,” I have been receiving calls and messages from friends all over the world asking for my take on the matter. This is mainly due to the strong negative reaction to the tariffs by domestic and foreign economists and media.
Initially my responses to my friends were that President Trump’s plans for ‘reciprocal’ tariffs are justified. I based my opinion on official data showing that tariffs are rarely symmetrical. There are historical reasons for this asymmetry, which are covered later in this document. All are in favor to the importing nations and to the detriment of the U.S. exporter. Surprisingly, the data was published by the Financial Times on February 14, 2025, whose chief economist is one of the loudest critics of the tariffs (The Economic Consequences of a Mad King).
In following the intense debate in the media, it became evident to me that most of the warnings of economist were through a rather narrow lens of consumer welfare, inflationary pressures, price signals and protectionism. In essence, they were downplaying the critical dimension of trade policies, such as supply chain vulnerability (need for reshoring), geopolitical leverage by potential adversaries (e.g. rare earth metals), and domestic political stability (dislocated workers, hollowed-out towns).
To be able to participate in meaningful discussions I felt compelled to dig deep to obtain a broader picture of the Trump administration’s new policy and the complex elements it entails. I do not follow the notion that we are in a “Trade War.” According to the WTO, countries are not subject to any laws hindering them from engaging in bi-lateral negotiations.
In the interest of objectivity and to provide an unbiased perspective, I turned for help to our granddaughter, Vivienne Bartels, who recently graduated summa cum laude from Colgate University with a degree in International Relations, concentrating on international economics.
Please find below our observations.
Joachim C Bartels (joachimcbartels@gmail.com) Vivienne Bartels (vivienne.bartels@gmail.com)
The Bigger Picture
Economists have been sounding the alarm since ‘Liberation Day’¹ on April 2. They predicted that ordinary Americans would be shouldering the costs of the levies. Economists have been reporting these predictions with history and research as their shields of evidence. In all fairness, studies have shown that when a country imposes duties on its imports, its foreign suppliers often keep their prices roughly the same, with the tariff being layered on top.
There is some evidence of higher prices. For example, Ferrari added 10% to the price of its cars. Camera-maker Canon has seen price increases. But these are not the crippling, sweeping price increases that economists (with perpetuation from mainstream center and center-left media) predicted. The broader pattern is largely neutral. There is little evidence so far of tariff ‘pass through’ into inflation. In June, America’s core consumer prices (excluding food and energy) rose by 0.2%, missing the consensus estimate of 0.3%.
America’s foreign suppliers may be sharing more of the load than in Trump’s first term. Nintendo is keeping their prices level. South Korean, Chinese, and British importers have also resigned to accepting the costs of the tariffs. Listed companies, even in developing markets, have large aggregate margins. In other words, they have been benefitting from increasing their prices without any incurrent costs from import duties. These companies are much more willing to absorb a small hit to profits, compared to the average American consumer who has little tolerance for paying even higher prices on already expensive goods.
President Trump is not implementing these tariffs for no reason. It is time consuming and can be perceived as threatening to nations that have normally had a good relationship with the United States. This tariff implementation is part of a broader picture, once which most economists are missing in their analyses. The tariffs are just one part of the plan to protect the United States from a volatile global supply chain, a massive current account deficit, and worst-case, a global conflict. Economists, and in turn the media, need to express the fact that tariffs are just an element of a more comprehensive national security plan.
- Targeted tariffs as leverage: Tariffs are not blanket economic punishments. President Trump’s primary aim was to force reluctant nations to the bargaining table to ensure a fair deal for the U.S. Japan, Vietnam, Indonesia, Britain, and the Philippines have all come to agreements with the U.S. which has reduced the initial tariffs placed upon them. The leverage is working – nations are coming to the negotiating table.
- Industrial policy revival: Industrial policy is government action that encourages or directly subsidizes the expansion of certain economic sectors. During early industrialization, the U.S. used tariffs to build up domestic capacity. President Trump is seeking to encourage domestic production and supply chain resilience. These tariffs have not been implemented with nothing to back them up. The CHIPS and Science Act, Inflation Reduction Act, and Infrastructure Investment and Jobs Act, use subsidies, tax credits, and R&D support to bolster strategically important industries. This is not a partisan trend – the CHIPS act and IRA were brought in while President Biden was in office. The tariffs are just a chess piece on the U.S. strategy board of pushing more America-centric production and job creation. This is nothing new – Europe has been doing it for centuries, and China are certainly not backing down anytime soon.
- National-security controls: Since Russia invaded Ukraine in 2022, norms on the Westphalian ideas of sovereignty² are wavering. Countries soon discovered that their oil & gas and wheat, imported from Russia and Ukraine respectively, were part of a supply chain that combusted as soon as it was placed under the strain of war.
Compounded with territorial disputes in the Middle East, President Trump is choosing to quickly force the reshoring of critical industries not just to bring jobs and revitalize the economy, but in the case that a nation we rely on for certain goods suddenly stops providing said goods.
Trade overreliance on rare earth metals, steel, aluminum, and electronics, could pose as disastrous if there were to be a shift in geopolitical relations. Russia is not backing down in Ukraine. Trade agreements with China are shaky. The logical choice is to prevent any more import reliance as soon as possible.
Historical Precedent
The economy-wide inflation hit has been modest to date, and the security and industrial policy payoffs are exactly the parts standard tariff critiques don’t capture well. European economists are especially quick to label U.S. policy as a bad move, not understanding that this same policy won WWII and rebuilt their nations with the Marshall Plan.
Prior to that when the United States entered World War I, it discovered with shock that nearly all pharmaceutical products were sourced from Germany. That dependency had severe consequences for the health of the U.S. population, as supply chains were instantly cut off.
Roosevelt’s New Deal program of the 1930s are an early example of industrial policies. He sought to regulate wages and prices across a slew of industries.
The massive, government-directed World War II mobilization that followed was also an extreme case. Prior to the U.S. entering the conflict it set up the Lend-Lease program which built up military supplies and aided Great Britain and the Soviet Union with war material.
Franklin D. Roosevelt began aiding Britain before Congress formally approved the Lend-Lease Act in March 1941. Franklin D. Roosevelt pushed executive power to its limits in order to support Britain before the U.S. was officially in the war. He justified it as a matter of national security and moral duty, but in practice it meant acting first and leaving Congress to catch up later.
In short, Roosevelt, a Democrat, deliberately exploited executive directives to their fullest extent, seeing Britain’s survival as essential to America’s own security. He acted first and sought congressional approval later. Today, Trump, a Republican, invokes national security to justify his trade and tariff program, yet Democrats challenge his initiatives in court. The symmetry is striking: when executive action is aligned with one party’s goals it is hailed as bold leadership, but when taken by the other it is condemned as overreach.
When the US entered the war it was backed by a formidable industrial base. The U.S. had the skills, factories, and core industries to ramp up production of tanks, planes, and ships at a pace no other power could match. That industrial depth was decisive for Allied victory.
Today and short term, however, it is doubtful the U.S. could replicate that achievement. Decades of offshoring and overreliance on global supply chains have hollowed out America’s core industries, and core skills. Critical technologies, semiconductors, rare earth minerals, pharmaceuticals, are concentrated abroad, often in the hands of strategic competitors. This fragility is not a matter of consumer prices but of national survival.
Tariffs, then, should not be judged solely by their economic efficiency. They are one tool among many, alongside industrial policy, reshoring incentives, and friendshoring, to rebuild the foundations of sovereignty. Economists may lament that tariffs distort markets. Strategists understand that tariffs can defend independence, buy time for domestic capacity to recover, and ensure that when the next crisis comes, the United States and its allies will not find themselves dangerously dependent on adversaries.
After the war, U.S. industrial policy was largely driven by competition with the Soviet Union, including the space race. The Pentagon’s response to the Soviet Union’s launch of Sputnik (the first artificial satellite) has been credited with paving the way for the modern internet and GPS, among other breakthroughs.
What many Americans do not realize is that for a long time the United States has been tolerating great asymmetry with their allies. From the 1950s to the 1970s, the U.S. kept its markets relatively open, while Germany, Japan, and later South Korea and Taiwan, maintained higher tariffs and industrial policies. This asymmetry was tolerated because rebuilding allies was seen as a strategic Cold War objective. In 1995, the General Agreement on Tariffs and Trade (GATT) evolved into the World Trade Organization (WTO). Developing countries were given ‘special and differential treatment,’ allowing them to maintain higher tariffs while still benefitting from U.S. openness.
Furthermore, the once-overwhelming labor cost advantage of offshore locations like China and Vietnam is eroding. Wages in Asia are rising, and the cost of global shopping has become unpredictable. When accounting for freight delays, inventory risk, and quality control issues on top of the newly introduced tariffs, reshoring can become more appealing.
Role of the WTO
What many people also miss is that the WTO is not the enemy. Its goal is to encourage free and fair trade. It also operates on the premise that countries that trade with each other are less likely to go to war with each other, therefore attempting to stabilize any potential conflict. This stability only stems from the compliance of member states. Even sanctions based off non-compliance must come from member states.
The WTO has no enforcement mechanisms of its own and is therefore not ‘preventing’ the United States from creating bilateral or free trade agreements.
Elements of Trump’s Trade Policy
Reshoring of Critical Industry Sectors
President Trump’s intends for these tariffs to bring jobs and factories back to the U.S. Onshoring is a complex decision for a company to make and then proceed to carry out, however, key industries are returning to the U.S. and bringing jobs with them.
In 2023 alone, companies announced over 287,000 reshored or nearshored jobs. Semiconductors, electric vehicles, clean energy, aerospace, and pharmaceuticals are leading this movement.
Top reshoring sectors include:
- Semiconductors / Microelectronics
- Through the CHIPS and Science Act, there’s been major emphasis on increasing domestic chip fabrication capacity.
- This is tied both to supply-chain resilience and national security.
- Pharmaceuticals / Life Sciences / Biomanufacturing
- There are efforts to onshore drug manufacturing, reduce dependence on foreign sources for active ingredients, increase regulatory oversight to encourage U.S.-based production.
- Bio-manufacturing (including vaccines, therapeutics) is seen as critical for health security.
- Aerospace & Defense / Transport Equipment
- Shipbuilding, aircraft components, related supply chains are being highlighted.
- The idea is to ensure the U.S. maintains capacity for military, civilian, and infrastructure needs.
- Autos / Electric Vehicles (EVs) / Clean Energy Technologies
- Batteries, EV components, clean energy manufacturing are increasingly being emphasized, because they’re both economically forward-looking and tied to energy / climate goals.
- Basic and Fabricated Metals; Machine Tools / Industrial Machinery
- Steel, aluminum, downstream metal-fabricated goods, machine tools are important both for backbone supply (inputs) and for defense/manufacturing capacity.
- Shipbuilding / Maritime / Transport Infrastructure
- Recovering U.S. shipbuilding capacity (military and commercial) is an explicit priority, partially as a reaction to perceived dominance of other nations (e.g. China) in that sector.
- Clean Energy / Electrification Infrastructure
- Not just the products (e.g. EVs, solar, batteries) but the upstream inputs, manufacturing of equipment, supply of critical minerals. Grid modernization and energy infrastructure are also part of this.
Key reshoring locations include:
- Georgia – Tennessee – Texas – Ohio – Michigan – Indiana
- Arizona – Utah – Pennsylvania – New York – Maryland
Most noticeably is the semiconductor industry, which is driving reshoring and major FDI in the U.S. From October 2024 to April 2025, semiconductor projects accounted for $102.6 billion in capital investment, or approximately two-thirds of all foreign capital invested during that period.
These investments created over 17,600 new jobs, mainly due to mega deals with TSMC (Taiwan), Samsung (South Korea), and ASML (Netherlands). The global computer chip shortages, combined with the subsidies and tax benefits of the CHIPS Act, have also driven the government to bring this critical, high-value supply chain in-house. Additionally, between January 2022 and April 2025, the industrial equipment sector saw almost 200 foreign investment projects. These projects typically include machine shops and parts fabrication, robotics and automation, furnaces and tooling, and assembly and distribution facilities.
The Skill Gap
The loss of core industries has also resulted in the loss of skill sets. This has become a serious roadblock for bringing in reshoring of critical industries. The US does not have sufficient skilled workers for core reshore industries.
One of our sources for economic news is Armada Corporate Intelligence (Issue 250910) . During one of their more recent updates the top issue is the shortage of labor. The Baby Boomers are leaving the workforce and there are no replacements in sight.
“More frustrating is that people are not being educated for the jobs that exist. Some 9 million people are ostensibly looking for work but they lack the relevant skill. How is it possible that there are nearly 6,000 colleges and universities in the US and we don’t have enough trained people? The education establishment is not keeping up and hasn’t for years. It has become a crisis and an expensive one. The costs of education have risen sharply but the students lack the skills needed by the economy – it is a very costly disconnect.”
Current trends in closing the Skill Gap: Vocational Training
The industrial world – not just the USA – is short of a qualified technical workforce. This critical skills gap is fueled by an aging working population, a decline in vocational training, and the rapid pace of technological change that requires more advanced technical skills.
In the US the loss of key industries to countries in Asia has also led to a loss of skill sets. This poses a dilemma which is hard to overcome short term.
There appears to be a light at the end of the tunnel. A tight job market for traditional degrees, combined with the practical advantages of a trade education is driving students toward these alternative pathways.
Shortage of Labor: Current situation in the USA
Manufacturing: The Manufacturing Institute and Deloitte project that project that the U.S. manufacturing sector will have 3.8 million job openings by 2033, with more than half potentially going unfilled due to a lack of skilled workers.
Engineering and Tech: In 2024, the Computing Technology Industry Association (CompTIA) noted that U.S. tech job growth is double the national average, but a 2022 survey found that 70% of digital leaders believed a skills shortage was preventing them from keeping pace.
Construction: The Associated General Contractors of America reported that 91% of construction firms struggle to find qualified workers.
Semiconductors: A 2023 report projected that by 2030, 58% of U.S. semiconductor manufacturing and design jobs could be unfilled, particularly for skilled technicians.
Trump’s Reciprocal Tariff Strategy
The core idea behind “reciprocal tariffs” is symmetry: if a foreign country charges higher duties on U.S. goods, then the U.S. imposes tariffs of the same magnitude on their exports.
Mechanism: Instead of broad blanket tariffs, the U.S. targets sectors where partners maintain higher duties than the U.S. Example: If the EU charges 10% on U.S. auto imports, while the U.S. only charges 2.5% on European cars, Trump’s approach is to raise U.S. auto tariffs to 10%. The intent is to pressure trading partners into lowering their tariffs, thereby eliminating the long-standing asymmetry.
Objective: Correct what Trump describes as “unfair trade” built up over decades. Reduce structural trade deficits. Restore domestic industrial competitiveness.
Non-Tariff Trade Barriers (NTBs)
Tariffs are only one form of protectionism. Trump and his trade team argue that even when foreign tariff rates are lowered, U.S. exporters face hidden barriers in overseas markets. This is why reciprocal tariffs are bundled into broader trade talks about non-tariff trade barriers (NTBs).
What are Non-Tariff Trade Barriers? These are regulatory, administrative, or technical measures that restrict trade without being formal tariffs. Key categories include:
- Quotas & Import Licensing
- Restrictions on the quantity of goods (e.g., steel import quotas).
- Standards & Technical Regulations
- Product safety rules, certifications, environmental standards (sometimes stricter for imports than domestic goods).
- Customs Procedures & Red Tape
- Delays, excessive paperwork, inconsistent rules at borders.
- Subsidies & State Aid
- Domestic producers receive heavy subsidies (e.g., EU agriculture, Chinese state-owned firms).
- Local Content Requirements
- Laws forcing companies to use a percentage of domestic components to qualify for sale.
- Government Procurement Restrictions
- Foreign companies barred or disadvantaged in bidding for public contracts.
Combining Tariffs and NTBs
Trump’s team frames reciprocal tariffs as leverage in negotiations:
- Tariffs as a stick: impose equal tariffs until partners negotiate.
- Non-tariff barriers as part of the bargain: discussions go beyond headline tariffs to address hidden restrictions.
- Objective: not just reducing tariffs, but also dismantling unfair NTBs that hinder U.S. exporters.
For example: in autos with the EU, the U.S. not only pushes for tariff parity but also for the EU to harmonize safety and emissions regulations so U.S. cars can be sold more easily. With China, reciprocal tariffs are linked to reducing subsidies for state-owned enterprises, addressing forced technology transfer, and opening procurement markets.
The Broader Vision: Trump’s reciprocal tariff strategy isn’t just about raising duties. It’s about resetting the rules of trade. By tying tariffs to NTBs he reframes tariffs as a negotiating tool rather than a protectionist end-state. He seeks to eliminate both visible asymmetries (tariffs) and hidden asymmetries (NTBs). The strategy fits into a broader industrial policy revival: reshoring key industries, reducing dependency on foreign supply chains, and aligning trade with national security.
Reducing the U.S. Trade Deficit
The United States’ trade deficit, now at one trillion dollars, is unsustainable and poses a growing threat to financial stability. Addressing it requires navigating an intricate web of tariffs, non-tariff barriers (NTBs), and complex negotiations. The task is inherently difficult and time-consuming, yet critics often dismiss the administration’s approach as “chaotic,” without acknowledging the magnitude of the challenge.
A recent report from the Information Technology & Innovation Foundation (ITIF) recommends that the Trump administration focus its attention on countries with the largest trade imbalances and distortions. It specifically identifies China, India, and the European Union as areas where “the greatest gains can be achieved for the U.S. economy.” This approach reflects the idea of prioritizing a subset of countries, which is broadly consistent with an 80/20-type framework. However, the report does not use the term “80/20 rule,” nor does it state that the administration has formally adopted such a strategy.
Negotiations are being concentrated on these key relationships, with Washington pressing trading partners to increase imports of U.S. agricultural products, petroleum and natural gas, and military equipment. Whether this strategy will succeed remains uncertain. What is clear, however, is that reducing the trade deficit cannot be achieved overnight. It requires persistence, careful prioritization, and a willingness to recalibrate expectations.
Leverage Points (Examples)
For decades, Washington believed that access to the U.S. consumer market was the ultimate bargaining chip in trade negotiations. Foreign exporters, so the logic went, could not afford to lose America’s vast base of buyers. That assumption is now showing cracks. Global trade has shifted, and the U.S. market no longer carries the same gravitational pull it once did. China, India, and Japan – each in their own way – are demonstrating that they too have leverage points that can be used in response to American pressure.
China has made this plain by threatening to curb exports of rare earth minerals if the U.S. persists with harsh tariff demands. This is no idle threat. Rare earths are essential to electric vehicles, renewable energy, advanced electronics, and military systems. Although other countries have reserves, China dominates the processing capacity that makes them usable. By tightening the spigot, Beijing reminds Washington that it cannot weaponize tariffs without inviting retaliation in kind — and in a sector where the U.S. is still vulnerable.
Japan has delivered its own signal of displeasure. Following its first round of trade talks with the administration, Tokyo began selling U.S. Treasury bonds. This may sound technical, but the effect is profound. Japan is among the largest foreign holders of U.S. government debt, and when it reduces its exposure, bond prices fall and yields rise. That translates into higher borrowing costs across the American economy, from federal deficits to mortgages. For a U.S. government already running record debt, the message is clear: push allies too hard on trade, and they can push back in the financial markets.
India, meanwhile, has flatly rejected U.S. demands to abandon its lucrative oil trade with Russia. Buying cheap Russian crude, refining it, and reselling the products abroad has become a vital business, insulating India from energy shocks and fueling growth. New Delhi sees no reason to sacrifice that advantage for Washington’s geopolitical aims. Prime Minister Modi’s dash to Beijing to confer with Xi Jinping only underscored the point: when pressed, India will explore other partnerships, even with America’s chief rival.
Taken together, these moves mark a turning point. The U.S. still wields formidable economic power, but its traditional playbook of threatening tariffs and relying on consumer demand as leverage is no longer enough. Trading partners now have their own counterweights, rare earths, bond markets, and energy flows, and they are not shy about using them. What emerges is a far more contested landscape of economic statecraft, where America’s dominance is not assumed but tested at every turn.
To VAT or not to VAT
Finally, one overlooked obstacle in U.S.–EU trade debates is Value Added Tax (VAT). Because EU exports are VAT-exempt, European producers enjoy a built-in price advantage when selling abroad. American negotiators often portray VAT as a hidden subsidy, but it is perfectly legal under WTO rules. It is not a tariff; it is a consumption tax.
In the EU, consumption taxes, including VAT, account for roughly 26.9% of total government revenue, while labour-based taxes such as income tax and social contributions contribute about 51.2%.
Europe cannot do away with VAT; it is too important to government finances. But the United States could consider adopting a federal VAT of its own, replacing or reducing the patchwork of state sales taxes. With American household consumption the largest in the world, a VAT tax could generate substantial revenue, help reduce federal deficits, and improve trade fairness by creating a level playing field.
Since Washington has long hesitated to embrace a federal consumption tax, the EU might be best positioned to persuade Americans of the merits. Europeans have decades of experience working with VAT, and they can demonstrate not only its fairness compared with the outdated U.S. sales-tax system, but also its practical benefits in sustaining modern welfare states while keeping trade practices compliant with global rules.
Conclusions
Drastically changing the U.S. trade policy is always going to be controversial. Tariffs alone will not solve America’s economic or security challenges but dismissing them as protectionism misses their larger purpose. The Trump administration is attempting to bring back the foundations of U.S. independence by reviving industrial policy, strengthening supply chains, and protecting domestic interests.
Historical precedent shows that the United States has relied on similar tools to prepare for and prevail in times of crisis, from the world wars to the Cold War. While economists may focus narrowly on market efficiency, policymakers must always weigh broader considerations: resilience, strategic leverage, and sovereignty.
Trade asymmetries, skill shortages, and geopolitical volatility demand more than passive reliance on free markets. This passiveness is what allowed the U.S. to fall into this situation in the first place. Tariffs, combined with investment in domestic capacity and reciprocal negotiations, represent one piece of a larger strategy to ensure that the United States can protect itself and its allies in an increasingly uncertain world.
Sources
CFR The Economist Manufacturers Alliance All American Manufacturing Today
The White House Reuters Armada Corporate Intelligence
Notations
1 Liberation Day is a term used by Trump in announcing a new tariff round. His action signaled that the United States would no longer tolerate one-sided trade arrangements. By imposing reciprocal tariffs on trading partners, Trump framed tariffs not as an end in themselves but as the first move in a larger strategic plan. That plan extended well beyond tariffs. It encompassed the elimination of non-tariff trade barriers, the reduction of chronic trade deficits, and the securing of vulnerable supply chains. It also envisioned the reshoring of critical industries and the revival of domestic manufacturing capacity. But “Liberation Day” did not end with executive action. The true consolidation of this strategy came when Congress ratified elements of it into binding law.
2 Westphalian ideas of sovereignty mean that states have exclusive authority over their own territory and domestic affairs, free from external interference, a principle established by the Peace of Westphalia in 1648. This concept established the modern system of sovereign nation-states, asserting that each state, regardless of its power, has an equal right to control its territory and internal policies without outside political or religious influence. A core tenet is the principle of non-intervention, which prohibits other states from meddling in a country’s internal affairs.
³Value Added Tax: Value Added Tax (VAT) is a broad-based consumption tax levied on the value added at each stage of the production and distribution chain. Businesses charge VAT on the goods and services they sell (output tax) and can deduct the VAT they have paid on their own purchases (input tax). The net result is that VAT is ultimately borne by the final consumer, while businesses act as tax collectors.
The VAT tax is border adjustable: exports are exempt from VAT, while imports are taxed, ensuring neutrality in international trade. Different from sales tax: unlike U.S.-style sales tax, which is collected only at the final point of sale, VAT is collected in increments along the entire supply chain. Prevalence: more than 170 countries use VAT (including all EU members). A most common form of consumption tax worldwide.