Why the US loses more than it gains

Anyone searching for a coherent rationale behind the Trump administration’s abrupt imposition of steep tariffs in early April – heralded by President Trump as “liberation day” – will be left dazed and confused. The justification for these tariffs has not only been inconsistently articulated but, at times, has appeared outright contradictory.

On the one hand, we are told that the tariffs are designed to revive American manufacturing. On the other, they are characterised as tactical leverage – short-term bargaining chips to compel trading partners to open their markets to American goods. The implication of the latter is especially problematic: if the tariffs are to be lifted upon securing concessions, then US manufacturers are left to wonder what happens next. No rational business would commit to new investments when policy appears this paradoxical.

The early hope that such trade tensions might be swiftly resolved has already begun to fade. Japan – long considered a likely candidate for a quick bilateral agreement with Washington – recently concluded a round of negotiations with no deal in sight. This is particularly telling, given that the US is Japan’s largest export market, accounting for roughly 20 per cent of Japanese exports in 2023, valued at $143 billion. Japan’s chief negotiator, Ryosei Akazawa, returned home empty-handed, describing the American posture as “extremely regrettable”.

If securing concessions from Japan proves this difficult, extracting meaningful compromises from Beijing remains exponentially more challenging. The administration has engaged China in what game theorists call a ‘chicken’ scenario – a high-stakes contest of mutual economic brinkmanship. The result: Chinese imports now face a punitive 145 per cent tariff rate in American markets, while American products encounter 125 per cent duties when entering China.

The Trump administration seems to have misunderstood the asymmetry of economic dependency. The US imports a broad swathe of Chinese goods – both consumer and industrial – for which substitutes are either unavailable or prohibitively disruptive to supply chains. China primarily imports agricultural commodities from the US, products more easily substituted through alternative suppliers. Even Boeing aircraft can be replaced with those from Airbus.

While Beijing covets American high-technology exports, particularly semiconductors, these have been systematically restricted by both the previous Trump administration and then by the Biden White House.

Ironically, instead of stunting Chinese innovation, the embargo on sales to China of leading edge semiconductors and lithography equipment may have catalysed it. In recent months, China has made notable strides in strategic sectors, particularly Electric Vehicles (EVs) and Artificial Intelligence. The sudden emergence of the DeepSeek platform on the global AI stage is just one indication that China is not only catching up but it may be starting to lead. This rapid technological advancement underscores an immutable reality: technological diffusion inevitably transcends national boundaries, regardless of attempts to stop it from doing so.

Nowhere is the lack of strategic foresight more evident than in the area of rare earth elements. These 17 chemically similar metals are indispensable in the production of everything from EV motors and jet engines to military-grade weaponry. China holds a near-monopoly on their mining and refining, an environmentally hazardous process involving radioactive byproducts. According to the International Energy Agency, China accounts for approximately 61 per cent of global rare earth production and an astounding 92 per cent of processing.

This dominance poses a serious vulnerability to US industrial and defence sectors. Rare earths are not just an economic asset but a strategic one. Between 2020 and 2023, China supplied 70 per cent of all US rare earth imports. Key American weapons systems depend on them. The Pentagon is acutely aware that without assured access to these materials, the US risks compromising its military footprint across the world.

The significance of these materials was further underscored just a few days back ago when Elon Musk, Tesla’s founder and major shareholder, announced that China’s suspension of rare earth magnet exports has delayed production of the humanoid robots, ‘Optimus’, his company had planned to build.

Ironically, it was Beijing itself that recently showcased its own advances in humanoid robotics – organising a half-marathon in Beijing just a week ago, featuring 21 participating robots. Only six reached the finish line, but even so that is a major breakthrough. As Dr Johnson said about a dog trying to walk on its hind legs, “it is not done well, but you are surprised to find it done at all”.

The event also served as a clear signal to global competitors that Beijing is ready and able to compete on an equal footing in cutting-edge technology.

Greenland, long known to contain rare earth deposits, has thus found itself unexpectedly thrust into US foreign policy discourse. President Trump’s proposal that Greenland should become part of the US has however been met with disdain by the island’s residents as shown by recent voting and opinion polling results.

If history is a guide, protectionism rarely delivers on its promises. Consider the Reagan-era Voluntary Export Restraints (VER) agreement of 1981, under which Japan agreed to limit automobile exports to the US. Far from hobbling Japanese carmakers, the restrictions spurred them to upgrade their product lines, establish manufacturing plants within the US, and enter new markets. By the time the agreement expired in 1994, Japanese automakers had not only survived but thrived – emerging more competitive and more integrated into the global economy.

The lesson is straightforward: unless domestic firms seize protectionist windows as opportunities for reform, foreign competitors will simply adapt, innovate, and return stronger. As a cautionary tale, the subsequent bankruptcies of Chrysler and General Motors in 2009 – averted only through emergency government loans – should serve as a reminder that artificial trade barriers do not compensate for the lack of strategic acumen.

Today, the Trump administration appears to be repeating the same mistakes, albeit on a larger scale. The ‘ready, fire, aim’ approach to trade policy is beginning to unravel. Treasury Secretary Scott Bessent is already rowing back on the idea of permanently high tariffs under pressure from sinking stock and bond markets as well as a declining US dollar.

Retail giants such as Walmart and Target have joined the chorus of concern, warning that the ongoing tariff standoff could lead to product shortages and price hikes that would ultimately be borne by American consumers.

Meanwhile, Chinese officials project remarkable equanimity, reportedly denying that any bilateral negotiations are underway. Beijing’s implicit message appears to be that responsibility for de-escalation rests with Washington as the initiator of this conflict. Or, as Napoleon put it: “Never interrupt your enemy when they are making a mistake”.

For countries like Pakistan, these global trade tremors carry indirect but consequential implications. The US remains Pakistan’s largest export destination, accounting for 17 per cent of total exports – or $5.5 billion – against $2.1 billion in imports. This trade surplus of $3.4 billion, the largest Pakistan maintains with any country, offers both opportunity and risk. Future trade negotiations may involve questions of Intellectual Property protection and scrutiny of Islamabad’s economic and strategic ties with Beijing. Pakistan’s nuclear capabilities may also draw renewed attention in US policymaking circles.

In sum, tariffs may generate headlines and stir populist sentiment, but they are no substitute for strategic economic policy. Without coherence, consultation or long-term vision, they are more likely to alienate allies, embolden rivals and disrupt domestic industries than to deliver any lasting advantage.

There is still time to shift course. But that would require qualities of humility, strategic thinking, and the ability to learn from the past. Such qualities seem to be in short supply.

The writer is a group director at the Jang Group. He can be reached at: iqbal.hussain@janggroup.com.pk