The Scary Reality Is That Trump's Tariffs Could Work.

I did some work to understand Trump's tariffs so that you don't have to—and my scary conclusion is that they could work.

Trump's recent tariff moves look chaotic and irrational. Markets have crashed, allies are angered, and even Wall Street and some of the MAGA faithful seem to be stunned. Tens of thousands of jobs could be lost in the UK and GDP growth could come to a grinding halt. Then there are the as yet unseen unintended consequences of escalating tariff wars and new global alliances.

But is it just the use of a blunt instrument to wield economic power, or is Trump really playing 4D chess?

I needed to know more.

After digging deeper into the thinking of Trump's key economic advisers, like Scott Bessent, the former hedge fund manager known for working alongside George Soros, and Steven Miran, the influential economic strategist, it's clear there's method, and ideology, behind the apparent madness.

The overarching MAGA goal is to re-industrialise America, viewing decades of offshoring as a direct threat to national security and economic stability. Trump's team is convinced that the short-term market chaos caused by tariffs is an acceptable price for the long-term goal of restoring America's industrial base.

What is Trump's Strategic Logic?

Tariffs as Leverage: Trump's tariffs aren't just punitive—they're negotiating tools. By imposing steep tariffs broadly, including on close allies like Canada and Vietnam, the administration is signalling serious intent. Tariffs on Vietnam have soared precisely to prevent Chinese goods from being rerouted and relabelled, circumventing tariffs. This broad-spectrum tariff strategy creates the pressure necessary for renegotiation on favourable U.S. terms.

Tariff Buckets and Global Realignment: Trump's advisers imagine the world divided into three distinct buckets:

🟢 Green Bucket: Allies who align with U.S. economic and security interests receive reciprocal tariffs, military protection, and preferential dollar access.

🟡 Yellow Bucket: Neutral or uncertain nations not fully aligned with U.S. rules face conditional access.

🔴 Red Bucket: Adversaries or direct competitors face maximum economic pressure and isolation.

This stark division forces countries to "pick a side," aiming to create a new global economic order with the U.S. at its centre, reminiscent of the Bretton Woods system.

Why American Manufacturing Will Still Face Challenges

Despite the strategic rationale, the reindustrialisation of America faces real obstacles:

High U.S. labour costs compared to emerging economies.
Flexible global supply chains that rapidly adjust away from tariffed nations.
Decades of underinvestment in infrastructure and technical training within the U.S.

Even if tariffs pressure firms to relocate factories back to America, competitiveness on cost remains a significant hurdle, but AI and automated physical labour will reduce costs.

AI and Robotics Will Shift the Balance

Within the next two decades, AI and robotics could dramatically reduce labour costs, diminishing the current advantage enjoyed by low-wage manufacturing hubs. Advanced automation could revive American manufacturing, particularly if the U.S. remains a leader in technological innovation. The cost advantages of low-labour markets might fade, allowing American factories to compete globally once again.

The global race for AI dominance is increasingly becoming a winner-takes-all contest, where leadership in artificial intelligence confers massive economic, military, and geopolitical advantages. It is arguable that America currently leads in AI innovation, but China's aggressive investments and strategic focus represent a powerful pushback against American hegemony. Beijing views AI not merely as technology, but as a key instrument to counterbalance U.S. influence, reduce dependence on Western tech, and assert itself as a global leader.

China is developing capable and cheap robots that will support its dwindling access to human labour as its population shrinks.

Raw Materials—the New Geopolitical Battleground

If AI can undertake most knowledge work and physical labour, the only missing ingredient for economic dominance are raw materials. Automation solves labour issues, but manufacturing also depends heavily on raw materials, especially critical rare-earth minerals. The Trump administration’s interest in acquiring territories like Greenland highlights this strategic necessity—securing access to essential raw materials that America cannot mine domestically at scale.

Potential for the Tariffs to Backfire

Yet, there's a significant risk: America's reliability as an ally and trading partner is undermined by constantly shifting trade policies and the frequent abandonment of established agreements. Canada has been clear on its willingness to retaliate and the EU is gearing up to reciprocate. If allies and rivals alike perceive the U.S. as an unpredictable partner, new economic blocs may form to circumvent reliance on U.S. markets entirely.

In this scenario, Trump's aggressive tariffs might inadvertently push countries to form alternative alliances, weakening America’s global influence rather than enhancing it.

Conclusion

The scary reality of Trump's tariff strategy is that it isn't random—it has historical and economic logic, potentially capable of reshaping global trade. Yet, it also carries enormous risks. The U.S. gamble on tariffs depends not only on its market size and economic clout but also critically on trust. Without stable diplomatic and economic alliances, America's new strategy might achieve the opposite of its intent, leaving it isolated in a rapidly realigning world.

Let's imagine for a moment that Trump pulls it off: nations capitulate in order to retain access to the American market, Greenland (or its resources) is acquired, American tech giants win the AI and robotics race, and the dollar remains the reserve currency.

In this scenario, America will become the most powerful nation—and this time, it will be permanent. This is worth letting the S&P take a hit until it plays out, as they can always reduce or remove tariffs. The question is whether domestic pressure and special interest groups will force change first.

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