Sen. Reed Smoot of Utah (right) and Rep. Willis Hawley of Oregon, both Republicans, photographed on April 11, 1929. The Smoot-Hawley tariff they authored has been blamed for prolonging the Great Depression. (Photo from the Library of Congress)
WASHINGTON — President Donald Trump’s tariff policy wiped out almost $10 trillion before U.S. stock markets bounced back Wednesday on news of a 90-day pause.
What could make damage of that magnitude worth it?
Trump and his team give three goals: leverage to get better terms from trading partners; protection for American industry; and revenue that could help pay down the national debt and cover the cost of a massive tax cut.
“President Trump created massive negotiating leverage for himself,” Treasury Secretary Scott Bessent told reporters at the White House on Wednesday.
That was shortly after Trump declared the pause on tariffs he had slapped on roughly 180 countries and territories only one week earlier. The White House sent mixed signals about whether Trump would ever budge.
Stock markets rejoiced after a week of panic selling.
The S&P 500 had its best day since 2008, and the Nasdaq skyrocketed 12%. Trump boasted about the spike and shrugged off his own role in the plunge that preceded it. The markets had been poised for a big drop anyway, he said.
The major indexes were still down at least 3% from a week earlier, when Trump unleashed the tariffs on what he dubbed “Liberation Day.”
Economists and foreign affairs experts say the damage went deep and won’t easily be erased.
Along with trillions in wealth, trust with close allies evaporated. The 10% tariff that Trump imposed on nearly every country remains in place even as he sets aside levies as high as 50%.
But Trump raised the rate on Chinese imports to a staggering 125% on Wednesday.
No other president has used tariffs on such a massive scale, so history provides only limited guidance on whether Trump’s tactics can work.
Creating leverage
As Trump sees it, Americans have been getting ripped off – “looted, pillaged, and plundered by nations near and far, both friend and foe alike,” he said in his April 2 “Liberation Day” speech.
He points to trade deficits with China, the European Union, Canada, Mexico and almost every other nation.
Economists view Trump’s understanding as simplistic.
“Having a trade deficit with a country does not mean we are subsidizing that foreign country,” Domenico Ferraro, an associate professor of economics at Arizona State University, said by email. “Nobody is forcing U.S. consumers to buy foreign goods; they do so because they are either of better quality or cheaper.”
In any case, he said, if Trump believes there are unfair practices, “a better way forward is by re-negotiating trade agreements, not disrupting long-term trading relationships and supply chains.”
Sen. Mark Kelly, D-Arizona, mocked Trump’s version of the “Art of the Deal” – the title of the president’s 1987 book – as “dangling our economy off a cliff, then claiming victory for pulling it back.”
Dangling our economy off a cliff, then claiming victory for pulling it back. The “Art of the Deal.” The tariffs he left in place will keep raising costs for working families and small businesses.
— Senator Mark Kelly (@SenMarkKelly) April 9, 2025
The trade war with China is still raging. Toys, rare earth minerals needed for cellphones and other electronics and clothing – all are expected to more than double in price.
The president raised the tariff on Chinese imports to 125% after China raised tariffs on American imports to 84% on Wednesday. The White House said Beijing has the weaker position and Trump said he expects to end up with a deal.
“President Xi is a proud man,” he told reporters on the South Lawn. “They don’t know quite how to go about it but they’ll figure it out. They’re in the process of figuring it out. But they want to make a deal.”
He said more than 75 countries have reached out seeking talks in the past week.
“I did a 90-day pause for the people who didn’t retaliate because I told them, ‘If you retaliate, we’re going to double it,’” he said.
Bessent said “deal teams” are being dispatched around the world and the president’s hardball tactics have made their work easier.
Protecting manufacturing
Trump and others who support his trade plans see tariffs as an effective way to hit back against dumping – selling below cost in order to steal market share from U.S. competitors with higher labor costs – and other inequities.
“We are finally going to be able to make America great again, greater than ever before,” Trump said last week. “Jobs and factories will come roaring back into our country. … We will supercharge our domestic industrial base. We will pry open foreign markets and break down foreign trade barriers.”
Policymakers across the ideological spectrum have embraced tariffs for this purpose. But usually, they’re more targeted.
Trump put such tariffs on $300 billion worth of imported steel and aluminum during his first term, plus tariffs on a range of Chinese products, including solar panels and washing machines.
President Joe Biden expanded the China tariffs his predecessor had implemented. He raised the tariff on electric vehicles to 100% and 50% on solar panels; and added 25% tariffs on EV batteries, critical minerals, steel, aluminum, face masks and ship-to-shore cranes.
The EV tariff “was a legitimate case to be made that because of the Chinese government’s very heavy hand on the scale, the price differential between the cars they were importing and American cars was not one that could be fairly made up,” Ron Kirk, who served as U.S. Trade Representative under President Barack Obama, told Cronkite News by phone.
But he added, blanket tariffs like Trump’s are bad policy: “The ultimate effect of a tariff is to take the decision-making out of the hand of the buyer and put it in the government.”
Generating revenue
The U.S. didn’t impose an income tax until 1913. Before that, tariffs were the main source of federal revenue.
George Washington, the first president, signed the Tariff Act of 1789, as a way both to raise revenue and protect manufacturers in the new nation.
In 1930 – eight months after the Black Tuesday market crash of October 1929 that marked the start of the Great Depression – President Herbert Hoover signed the now-infamous Smoot-Hawley Tariff Act authored by Sen. Reed Smoot of Utah and Rep. Willis Hawley of Oregon, both Republicans.
The act ended years of free trade policy. It imposed around 900 import levies that averaged 40% to 60% with a goal of protecting the nation’s struggling farmers and businesses. Many economic historians view it as catastrophic and, if not a prime cause of the Great Depression, at least an important factor.
Other nations retaliated with tariffs of their own. U.S. trade plummeted by 40%.
Congress gave President Franklin D. Roosevelt authority to reduce the Smoot-Hawley tariffs in 1934.
He used that as leverage to bargain down retaliatory tariffs that had been imposed on U.S. exports.
Trump argues that tariffs can once again be a major source of federal revenue.
“You’re going to see billions of dollars, even trillions of dollars, coming into our country very soon in the form of tariffs,” he said last month.
The Tax Foundation estimated that the broad tariffs Trump announced last week and then rolled back could have raised nearly $2.2 trillion over the next decade – though it would also reduce the nation’s economic output by 0.8%.
Those tariffs would also have driven up household spending by $1,500 a year, the Tax Foundation said.
Trump has been seeking ways to offset the cost of extending the 2017 tax cuts that expire this year. That would reduce federal revenue by $4.5 trillion over a decade.
But Ferraro, among others, argues that Trump’s tariffs would strangle trade so vast revenue would never materialize.
“The scope for raising significant tax revenues is minimal,” he said. “In a nutshell, solving the problem of the large and growing federal deficit with tariffs is unfeasible.”