​Trump and the Tariff Weapon: Economics in the Service of an Aggressive Geopolitics​

The Challenge to the Most-Favoured-Nation (MFN) Principle

Since its establishment in 1995, the World Trade Organisation (WTO) has been based on a set of principles designed to govern free trade among its members. Among them, the principle of Most-Favoured-Nation (MFN) constitutes one of the pillars of trade multilateralism: it requires that any tariff concession granted to one member country be automatically extended to all other members, thereby ensuring equal treatment. This principle stipulates that any tariff concession granted to a WTO member must be automatically extended to all other members. While exceptions do exist – notably for free trade zones (USMCA, EU), trade retaliation measures, and preferential agreements for developing countries – MFN ensures non-discriminatory treatment and tariff uniformity among WTO members. However, this principle was directly challenged by the Trump administration, which viewed it as a source of unfairness in the United States’ bilateral trade relations. Driven by a more unilateral and transactional vision of international trade, the Trump team, supported by the Heritage Foundation, developed a strategy of “tariff reciprocity” aimed at correcting what it perceived as persistent imbalances. In its Project 2025, the conservative think tank highlights the existence of tariff asymmetries: many of the United States’ trading partners reportedly apply higher tariffs to American products than they themselves face when exporting to the US. This situation, according to the Trump administration, is responsible for ongoing trade imbalances. In response to these trade distortions, Washington intends to enforce a principle of “tariff reciprocity”. In practical terms, tariffs would be selectively raised to compensate for disparities identified with trading partners.

This challenge to trade multilateralism raises serious questions about the future of international economic cooperation and the capacity of institutions such as the WTO to regulate growing protectionist ambitions.

A Controversial Calculation Method

The calculation method chosen to determine the new tariffs as of 2 April 2025 [1] has sparked strong criticism among experts. It is based on a rudimentary formula: the bilateral trade deficit is divided by the value of US imports from the relevant country, and this result is then halved to determine the applicable tariff rate. This approach is deemed arbitrary by most economists, as it takes no account of trade structures or substitution and circumvention effects. It effectively taxes imports based on broad macroeconomic imbalances, without detailed analysis of value chains or economic behaviour. Indeed, the figures put forward by the Trump administration overlook the ripple effects of tariffs on economic actors – whether through squeezing the margins of foreign exporters or, more often, increasing prices borne by American consumers.

In 2024, the most pronounced bilateral trade deficits were recorded with:

• China: -$338 billion
• European Union: -$192 billion
• Mexico: -$108 billion
• Vietnam: -$99 billion
• Canada: -$72 billion
• Japan: -$55 billion
• Ireland: -$54 billion
• Taiwan: -$41 billion

Donald Trump’s trade policy rests on a simplistic interpretation of international trade, dominated by the notion of bilateral imbalance. The Trump administration considers trade deficits to be the responsibility of trading partners and believes they should therefore bear the cost. The application of this method leads to certain absurdities: Cambodia, for example, would be subject to a 49% tariff. One might also be surprised by some geographical classifications: while metropolitan France is included within the “European Union”, its overseas territories – such as French Polynesia, Guyana, Martinique or Guadeloupe – are listed outside the EU, with tariffs estimated at 10% and 76%. Is this a mathematical inconsistency, a geographical oversight, or a political signal aimed at France?

Consequences That Are Difficult to Gauge

Though it is still too early to fully anticipate the outcomes, it is certain that the implementation of these new tariffs would have major economic and geopolitical consequences.

Economically

The Trump administration claims that the widespread increase in tariffs could generate up to $600 billion annually in additional revenue. These funds would be used to finance a cut in corporate income tax, lowering the rate from 21% to 15%, in line with campaign promises. Several research institutes such as the Tax Foundation and Oxford Economics have raised doubts about the feasibility of these revenue projections. While the administration estimates tariffs could raise $600 billion per year, or $6 trillion over a decade, independent analyses suggest much lower figures. The Tax Foundation forecasts an increase in federal tax revenue of $258.4 billion in 2025, or 0.85% of GDP. The Congressional Budget Office (CBO) estimates that tariffs could generate around $800 billion over ten years – about $80 billion per year – without accounting for retaliatory measures. To offset a significant reduction in income tax, average tariffs would need to be set very high across all imports, which could have considerable negative economic effects. Erica York, economist at the Tax Foundation, notes that a flat 70% tariff on all imports would be needed to match 2023 income tax revenues – a measure deemed unrealistic. Thus, the administration’s projections appear optimistic and do not fully consider market responses, reactions from trading partners, or potential economic fallout. Moreover, the announcement of this tariff reform caused an immediate shockwave in financial markets. US stock index futures fell significantly: the S&P 500 dropped 2%, and the Nasdaq 100 fell by 3%, reflecting investors’ fears of a protectionist escalation and the prospect of a prolonged trade war.

Geopolitically and Commercially

The US tariff strategy seems to be part of a broader challenge to trade multilateralism. The introduction of differentiated tariffs by country – with notable exceptions for certain geostrategic partners – reflects a desire to redefine global trade power dynamics outside traditional institutional frameworks such as the WTO. This policy may reshape alliances and could trigger retaliatory measures from targeted powers, especially China and the European Union, which have already indicated a readiness to respond.

The announcement of steep tariffs against Taiwan – set at 32% – is a particularly strong diplomatic signal with potentially explosive implications. This is especially concerning given Taiwan’s strategic role in global value chains, particularly in the semiconductor sector, which is critical for the global digital economy. While some industries, like semiconductors, currently benefit from partial exemptions, the political message is clear: once sufficient onshoring of key component production has occurred in the US, disengagement from Taiwan cannot be ruled out. This signals an intent to reduce technological dependence on East Asia in favour of greater strategic autonomy.

The pharmaceutical sector also enjoys temporary exemption from the new measures, aiming to avoid disruption in the supply of essential medicines. Nevertheless, this status may change, and the sector remains watchful of future trade policy decisions. These tariffs have been maintained independently of other announced measures, reflecting a distinct approach for industries considered strategic to national security. In 2023, the main exporters of medicines to the US were Germany, Switzerland, Belgium, Ireland and India – the latter playing a vital role by supplying generic medicines worth around $9 billion in 2023, nearly a third of India’s total pharmaceutical exports.

Finally, defence-related products such as steel and aluminium are already subject to specific tariffs of 25% under Section 232. However, recent developments suggest that these tariffs could have broader implications for US arms production. Indeed, new tariffs imposed by the Trump administration – including a 20% levy on EU goods and 10% on imports from the UK and Australia – may disrupt global supply chains essential for manufacturing American weapons systems. These disruptions could increase costs and delay production, potentially undermining international security partnerships and joint defence projects like the F-35 fighter jet and the AUKUS submarine alliance.

Russia and North Korea are notably absent from the list of countries facing higher tariffs. The White House has justified this by citing the existing economic sanctions that already severely restrict trade with these nations, making additional tariffs unnecessary. Moreover, regarding Russia, the Trump administration has expressed a willingness to reopen diplomatic dialogue. In February 2025, discussions began between US and Russian representatives to restore normal diplomatic missions. Imposing new tariffs would have jeopardised this rapprochement.

Conclusion

Donald Trump’s protectionist rhetoric serves to justify a broad increase in tariffs, presented as a legitimate response to allegedly unfair trade practices. It forms part of a broader strategy of economic sovereignty, but it carries risks for the balance of the international trade system and global diplomatic stability. The effectiveness of the new tariff policy remains uncertain. However, it is likely these measures will be used as bargaining tools in other sensitive geopolitical areas, including fentanyl trafficking with Canada. This approach, characteristic of offensive economic diplomacy, reflects a deliberate strategy of using tariffs as a lever of strategic pressure.

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[1] On 9 April, D. Trump announced a 90-day moratorium and maintained a global tariff rate of 10% on all countries affected by his new duties, with the notable exception of China.