February 2025. Donald Trump drops a bombshell sweeping tariffs on China, Mexico and Canada. Since Trump took office, the Nasdaq has dropped by 9.5% as investors struggle to wrap their heads around Trump strategy. Even worse, GDP forecasts for Canada, Mexico and the U.S. have all taken a hit down by 1.152 and 0.4%, respectively. Now, world leaders are scrambling to shift supply chains, establish new trade agreements and prevent total economic collapse. Which begs the question do tariffs actually work? This is Trump the Tariff Man. To understand tariffs today, we need to start our story in 1789. Back when the US was still finding its footing. Many American thinkers and politicians weren't buying into Britain's free trade gospel. They saw it for what it was a strategy that worked for Britain, but not for a country trying to catch up. Instead, they pushed for something different government protection and subsidies to build up American industries just like Britain had done before them. Enter Alexander Hamilton in his report on manufacturers. Alexander Hamilton laid the groundwork for modern protectionist theory. His argument was simple if a country wanted to build a new industry, it needed time to grow. And that meant shielding it from foreign competition. To do this, Hamilton proposed tariffs on imports or in some cases, outright bans. These barriers would give American industries the breathing room they needed to develop. He also backed government subsidies, which he called bounties, to further support domestic manufacturers. Yes, this would mean higher prices at first, but Hamilton believed that once an industry was fully developed, it would become cheaper and stronger, able to compete on its own on the global stage. This is very important because this moment of time forms the foundation for Trump's strong support of tariffs. Let's break it down. The history of tariffs can be broken down into three distinct periods inception, transition, and reform. In phase one, tariffs represented about 95% of federal revenue in phase two. 50%. And fast forward to today, they represent about 2%. So what happened? Well, government changed its mind during the Civil War. The US government imposed a 3% tax on incomes over $800 to raise money for the war. That was the first taste of income tax. Then came the passage of the 16th amendment in 1913 that introduced a federal income tax. The idea was simple. The government's role in society was growing, and they needed a more predictable source of revenue. Think welfare education in the military. Trump and his advisors see the pre 1913 era as the golden age for American industry, a time when everyone had a fair shot. Domestic businesses were shielded from globalization, and taxation was a pejorative. After all, it was British taxes that sparked the American Revolution in the first place. But do tariffs even work in a world that is so connected and globalized? The short answer? Probably not. And we can thank Trump for the evidence. Tariff. Tariffs. Tariff. During his first term, Trump imposed tariffs on steel, aluminum washing machines, solar panels and a range of Chinese imports, affecting a total of $380 billion in goods. For simplicity's sake, let's call them tariffs. One most online rhetoric skips over the effects of tariffs one. Instead championing a new American First agenda. But dig a little deeper and you'll see it's the same logic that was driving policy back then. Here's one tweet. Here's another, here's another and another and another. You get the point. But did these tariffs produce their intended effect? Let's talk about U.S. steel a long time rallying cry for the MAGA base. Back in March 2018, Trump slapped a 25% tariff on imported steel. In theory, this should have been a huge win for American steel workers. The US is the fourth largest steel producer in the world, and with foreign competitors, suddenly more expensive domestic smelters were ready to step up and fill the gap. And for a while, they did. Between 2017 and 2021, US steel production grew by 5.1%, and jobs in the industry ticked up by 6%, adding about 5400 new steel jobs. But here's the challenge. 5400 jobs is a rounding error when you compare to the overall sector size of 12 million. If you zoom out, employment is still stuck at levels far below pre 2008 levels. And as for tariffs they don't just protect industries they also raise prices. Under Trump steel prices climbed 2.4% and washing machines, another tariff targeted import spiked 12% in just one year. And then came the backlash. Canada, China, the EU, India and Mexico weren't just going to sit there. They fired back with their own tariffs on US exports. To make matters worse, this puts downstream industries which employ a far larger share of the US workforce at a major disadvantage. Economists at Harvard and UC Davis estimate that for every one job in steel production, there are 80 and industries that rely on steel like the automotive sector. As a result, US manufacture installed no surge in investment, no major job growth. In fact, foreign direct investment in US manufacturing something politicians love to show off, dropped by 38% on average during Trump's first term compared to the three years prior. The failure of protectionism becomes even clearer when you zoom out. China's rise as a global manufacturing powerhouse after joining World Trade Organization in 2001, completely reshaped trade and supply chains. Cheap Chinese goods drove down prices and pulled manufacturing jobs overseas. Trump sees this as the root of America's industrial decline. So in response, he hit China with 25% tariffs on $50 billion worth of imports during his first term. That said, Trump's tariffs did shrink the trade deficit with China. But here's the catch. The US global trade deficit still grew by 14% during his first term. Why? Because supply chains don't just stop. They adapt. With Chinese goods now more expensive, US importers and consumers simply shifted their buying to places like Vietnam and Mexico instead. That's why more companies are now near shoring to Mexico. And why? Chinese solar panel makers have moved their assembly lines just across the border to Vietnam. Same products, different route. The evidence is pretty clear. So why is Trump betting on tariffs all over again? The first reason is pretty straightforward. Tariffs play well with the base. They signal support for domestic industry especially in blue collar states, which helps keep those voters on Trump's side. You shrink the overall pie, but you prop up domestic industries, which might help reduce some inequality. But as we've seen already, that's not exactly how it always plays out. Another strong argument is to curb China. But tariffs don't address the underlying issue with global trade imbalances. The real problem China produces way, way more than it consumes, not because of some trade loophole, but because Chinese households save a massive share of their income. This isn't random. It's the result of culture and decades of policy, from the one child policy to an economic model that prioritizes investment in industrial growth over consumer spending. The numbers say it all. China's household savings rate is around 30%, nearly double the eurozone's 16%, and way higher than the US's 4.5%. The result? China has an industrial powerhouse but weak internal demand. That excess production has to go somewhere, so it floods global markets as cheap exports. US tariffs can't change this cultural and social dynamic in China. Instead of fixing the root issue, they just reshuffle trade flows. America's trade deficit kept growing and China's export surpluses never really went away. They just moved through different countries. Fixing this. That's not up to just tariffs. It's up to Beijing. It would take major economic and political reforms to boost household income, shifting spending habits and rebalancing China's role in global trade. And moreover, the US can't unilaterally do this themselves. The rest of the world also relies on China's cheap goods. And as long as there's still demand from them, they will likely continue to be the best manufacturer for many, many goods. Furthermore, there's a problem with this mindset. It might be incredibly shortsighted. First, why go after every single country at once? Second, this kind of pressure forces trade partners to adapt, pushing them to diversify supply chains and reduce the reliance on the US and not just on American goods, but on the US dollar itself. Which brings us to the final reason. The global role of the US dollar. The Trump administration has been hellbent on the idea of devaluing the USD. Enter Stephen Miran, one of Trump's top economic advisors, who literally wrote a paper titled A User's Guide to Restructuring the Global Trading System. But more on that in a second. His core argument, the decline of U.S. manufacturing and exports isn't just about trade policy. It's about the dollar. He believes the real problem is a structurally overvalued US dollar, driven by its role as the world's reserve currency. Being the world's reserve currency means the US dollar is the backbone of global finance. Businesses, investors and central banks use it to settle transactions and stabilize exchange rates. They also stockpile U.S. assets like treasuries because they're safe, liquid and reliable. And because the dollar is always in demand, its value stays high regardless of America's trade deficit. Secondly, he argues that tariffs generate revenue with little discernible macroeconomic consequence on the overall economy, with minimal inflationary or otherwise adverse side effects on American households. This kind of logic is exactly the kind that appeals to Trump, who recently shrugged off concerns saying tariffs might cause and maybe not some pain. The idea is that tariffs push up the value of the US dollar against other currencies. And when that happens, the cost of imported goods doesn't rise as much as you'd expect. At least in theory, studies show that currency movements offset only 30 to 50% of tariff costs for consumers. This also goes against the Trumpian economic worldview. You can't have a weaker dollar when tariffs cause a stronger dollar. For example, take a look at this chart. The effective tariff rate on Chinese imports increased by 18 percentage points between the start of the trade war in 2018 and September 2019. But the introduction of tariffs caused the Chinese renminbi to depreciate against the dollar by nearly 14%. So that the after tariff USD import price rose by a smaller 4.1%. Even with currency adjustments, tariffs can lead to inflation. Just look at the consumer price index in 2018. Tariff one increased core goods inflation by 0.5 percentage points. But Miran takes it a step further. He argues that the threat of tariffs or even pulling back the US security guarantees, could be used as leverage to push trade partners into multilateral currency agreement. One designed to devalue the dollar. Think of it as the modern version of the 1985 Plaza Accords, or the 1944 Bretton Woods Agreement. And since those deals were named after the resorts, they were signed. Miran proposes his own, the Mar-A-Lago Accords. Under this plan, participating countries would sell US dollars to strengthen their own currencies, making American exports more competitive. At the same time, they'd be required to buy long term U.S. government bonds, keeping interest rates low on U.S. debt put together. Miran sees the Mar-A-Lago Accords as a blueprint for a weaker dollar and a more balanced economic relationship between the US and its trade partners. And we don't necessarily disagree with some of his points. But the conclusion is clear. For the next four years, it's Trump's way or the highway. So here we are, a president who promised a cheaper, fairer world for his supporters but is backing a policy that at best will take years to show results. The idea of boosting domestic production and helping the workers who built this country sounds great, but at what cost can Americans handle the impact? How long is temporary? And in four years will they wake up to a world where their only ally is the man on TV? We don't know for sure, but something tells us this isn't what you signed up for. Thank you for watching. Subscribe to our weekly newsletter for more detailed breakdowns on the economy. We recently wrote about tariffs there, and if you like our videos, you'll love the newsletter.