Book Extract |The Economic Consequences of Mr Trump: What the Trade War Means for the World by Philip Coggan

Excerpted with permission from the publishers The Economic Consequences of Mr Trump: What the Trade War Means for the World Philip Coggan, published by Profile Books/Hachette India

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Taxing imports, bigly

If Donald Trump has any core belief, it is in tariffs. Back in 1989, when he was just a property developer, he told Diane Sawyer, a TV interviewer, that ‘I believe very strongly in tariffs.’ He added that ‘America is being ripped off. We’re a debtor nation, and we have to tax, we have to tariff, we have to protect this country.’ Over the intervening years, as Talleyrand remarked of the French Bourbon dynasty, he has ‘learned nothing and forgotten nothing’.

At times, Mr Trump seems to treat tariffs as a ‘miraclecure’ that can solve every ailment. Take his announcement, in May 2025, that he was planning to put 100 per cent tariffs on foreign-made films to save Hollywood from decline. The US film business has indeed been suffering but that is down to well-known factors such as the pandemic (which stopped cinema showings) and the rise of streaming services that allows people to view films at home. The idea that Holly- wood has been undermined by foreign films, such as the South Korean Oscar-winner Parasite, is ridiculous.

Yes, some foreign countries (including Britain) have lured filmmakers overseas with tax breaks. But the film companies have used these facilities because they are cheaper. Making them move production back to the US will only increase their costs, worsening Hollywood’s financial position, not improving it.

The problem with tariffs is that they are an incredibly blunt instrument that take no account of the complexities of indiv- idual industries. By levying a tariff, the government tries to impose its choice on where goods should be bought, with the result that consumers and businesses have to pay for inferior or more expensive goods. This is inevitably the case where there is no domestic equivalent (coffee beans, for example). Historically, tariffs were usually levied on very discrete goods, such as wheat, alcohol and tea. But the Trump tariffs are being imposed not just on finished products but on the components as well. The administration talks of US cars, Canadian cars or European cars. Such a description is way too simplistic. Cars are not made in one place; they are assembled with components that come from all over the world. When Mexico exports cars to the US, for example,around three-quarters of the components were originally made in the US. A tariff on Mexican cars is thus a tax on US component producers.

We are back to specialisation again. A manufacturer will want the most cost-efficient components to keep the price down. So, a tariff increases the costs of domestic produc- ers. A Federal Reserve Bank of San Francisco survey in 201ç found that around 45 per cent of US-produced goods and services consisted of imports – components and raw mat- erials brought in from overseas. Under the Trump scheme, manufacturers will have to pay taxes on these inputs.

The Trump team has not grasped the way that the global economy is interconnected. The corporate sector developed its current structure in a world where tariffs were relatively low by historical standards, and there were no enormous barriers to moving goods back and forth across borders. This led companies to create complex supply chains, with components produced in many different nations, before being assembled elsewhere. Tariffs, and particularly tit-for-tat tariffs, make this model impossible to operate.

Perhaps the best illustration of the negative conse- quences of Mr Trump’s tariff policies came in the form of a letter sent by the Footwear Distributors and Retailers of America (FDRA) to the president on 29 April. ‘American footwear businesses and families face an existential threat from such substantial cost increases,’ the letter warned. ‘Hundreds of businesses face the prospect of closure. Tens of thousands of jobs are at stake. Many orders have been placed on hold, and footwear inventory for US consumers may soon run low.’

The letter pointed out that the new tariffs piled up on existing ones, leading to overall rates ranging from 150 per cent to nearly 220 per cent (this was before the retreat on Chinese tariffs). These costs could not be absorbed or passed on to consumers, who are used to paying $30 to $50 for shoes. And the industry added that the existing tariffs had failed to stop domestic shoe production from declining. Further- more, it would take years of planning and huge amounts of capital to shift sourcing back to the US. Even if the industry wanted to make this adjustment, the letter also pointed out that ‘there is also a reciprocal tariff on the machinery and materials needed to make footwear in the US’.

Another problem with tariffs is that countries tend to retaliate. This is particularly the case with China, which matched Mr Trump’s moves, step for step, in April. One reason why American farmers dug themselves out of the downturn they faced in the 1980s was that they were able to find export markets for their goods, with China a top target. April Hemmes is an Iowa farmer who, as a member of the United Soybean Board, helped build the market for soy- beans in China. She told The New York Times’s ‘Daily’ podcast in April 2025 that the Chinese take more than half of all US soybean exports and turn the bulk of it into meal for feeding pigs and chickens while the rest is used as oil for cooking.

Her business was hit by the trade dispute between the US and China in Mr Trump’s first term and what bothered her about the current dispute was the lack of clarity about the future. ‘In order to plan, we need certainty,’ she said. Tariffs will cause her costs, in terms of seeds, chemicals and fertilis- ers, to rise while if China stops buying soybeans, the price of her crop will go down. She hoped that a deal could be arranged. ‘Whether we like it or the president likes it, our economies need each other,’ she said.

**********Philip Coggan, The Economic Consequences of Mr Trump: What the Trade War Means for the World ‎ Profile Books/Hachette India, 2025. Pb. Pp.144

Economic policy set at the whim of one man.

Tariffs up one day and down the next.

Businesses bewildered, consumers alarmed.

As Donald Trump wages his trade war, what will become of a global economy dependent on close trading links?

Leading financial journalist Philip Coggan lifts the lid on Trump’s economic gamble, why it’s a universal threat and how we can make sense of this new ‘age of chaos’. This is his clear-sighted and powerful rallying cry in defence of global trade — and why it matters for the world.

On 2 April 2025, President Donald Trump unveiled a package of tariffs on products from almost every nation in the world. The scale of these tariffs (which are taxes on imports) surprised observers around the globe and quickly sent financial markets into a tailspin. While Mr Trump said the announcement represented ‘Liberation Day’, the Economist quickly dubbed it ‘Ruination Day’.

Exactly 100 years previously, in 1925, Winston Churchill, as chancellor of the exchequer, took Britain back onto the gold standard. John Maynard Keynes, the great economist, advised again the decision and published a book lambasting the move called The Economic Consequences of Mr Churchill. This book is a homage to Keyne’s polemic and argues that Mt Trump’s package, and the confusing announcements that followed it, was one of the great economic mistakes in history.

The tariffs, or Trump tax, are a mistake in many different ways. But the most important error is a fundamental misunderstanding of the global trading system. The US does not make wholly American goods, nor the UK wholly British goods. Products are constructed from materials and components brought in from all over the world. Around half of all US cars are made from imported parts, for example. When you impose tariffs on imported components, you increase the cost of domestic producers.

The decisions of Winston Churchill and President Trump have some striking parallels. Keynes lamented that the consequences of a return to the gold standard would be a decline in the standard of living in the form of lower wages. Economists today worry that US workers will face a reduced standard of living in the form of higher prices.

Nostalgia also links the two proposals. Churchill was trying to recreate the conditions that existed before the First World War when Britain was the centrepiece of the global financial system, sterling was the pre-eminent currency and British industries were matched only by those of Germany and the US. Mr Trump is trying to recreate the conditions of the 1950s and 1960s, when US industry dominated the world and the men (and they were mostly men) employed in manufacturing could afford a house, a gas-guzzling car and all the latest gadgets.

If there are similarities between the mistakes of Trump and Churchill, there are also big differences. With the exception of Keynes, most experts in 1925 urged Churchill to rejoin the gold standard. Most modern economists would advise Mr Trump against hist trade policies – but he relies on his own instincts and the support of a narrow coterie of acolytes. Worst of all, Churchill’s policy mainly did damage to his own economy, but Trump’s approach is causing turmoil both in the US and in the rest of the world.

Philip Coggan is a former Economist and Financial Times journalist. In 2009, he was voted Senior Financial Journalist of the Year in the Wincott awards and best communicator in the Business Journalist of the Year Awards. Among his books are The Money Machine; The Economist Guide to Hedge Funds; the highly acclaimed More: The 10,000-Year Rise of the World Economy and Surviving the Daily Grind.