This is not a policy regime. It’s coin-flipping with global consequences.
P oliticians once debated the merits of tariffs versus free trade. Today, the real and growing problem is not just tariffs but uncertainty.
Under the Trump administration, the rules are no longer unclear in advance; they are unknowable. Businesses, workers, and trading partners are caught in a fog of executive orders and reversals that make long-term planning impossible.
Consider the news from just last week. A huge swath of tariffs was struck down by one court, briefly teasing the possibility of returning to nearly free trade for many goods, but not before tariffs were temporarily reimposed pending appeal. And as if to reinforce his authority, Trump arbitrarily raised tariffs on steel and aluminum to 50 percent under a different law.
This is not a policy regime. It’s coin-flipping with global consequences.
This latest episode is part of a second term during which Trump has raised tariffs on Chinese imports to over 100 percent and applied an arbitrary formula to imports from 90 other countries. Some tariffs were reversed; others are pending. Many are still being collected from U.S. importers.
A full trade embargo might be better. At least businesses would know the rules. That is, the current level of uncertainty may be worse for the economy than no trade at all unless Congress reasserts its authority over taxation and delivers stability. The recent court decision opens the door for Congress to intervene with a slower, more deliberate agenda.
Instead of coherent goals, we have the administration’s so-called “deals” with China, the U.K., and others. But these interim arrangements, negotiated bilaterally, are subject to change without legislative oversight. Some dangle the prospect of freer trade after more negotiations. But businesses and trade negotiators have long criticized such agreements as lacking detail, enforceability, and permanence. They raise uncertainty, rather than resolving it.
My research has examined trade policy uncertainty in many contexts: China’s WTO accession, Brexit, EU expansion, and the value of U.S. trade agreements during crises. The latest “interim deal,” temporarily reducing many U.S. and Chinese tariffs by over 100 percentage points, is a troubling example. My coauthors and I modeled scenarios with uncertainty where tariffs could flip between zero and at historically high levels, much like the outlines of the current U.S.-China deal.
We found that uncertainty between free trade and protectionism is worse than an unambiguously bad trade embargo. Such volatility discourages foreign investment in U.S. markets and raises prices. However, recent discussions have overlooked the fact that domestic producers also hold back, amplifying the losses.
That’s why news-based indexes of trade policy uncertainty are breaking pandemic-era records. In standard economic models, volatility harms investment in two ways. First, if policy shocks arrive frequently, firms delay hiring, capital purchases, or new product launches. Second, if tariffs range from zero to over 100 percent, the cost of making the wrong investment at the wrong time grows. And yes, 145 percent tariffs have been paid by many unlucky firms. Under Trump, both sources of uncertainty have exploded.
In this environment, trade flows no longer respond to comparative advantage, input costs, or wages. Firms announce vague plans for new factories while defensively reacting to headlines, polling, and executive discretion. These costs fall on consumers, U.S. manufacturers, North American subsidiaries, and countless small businesses.
This is not how you restore American manufacturing. Studies found no employment gains from past tariffs and large costs from higher prices and retaliation. Strategic decoupling may be defensible on national security grounds for a limited set of products, an exception, not the rule. But it must be done with clarity. Instead, we are manufacturing uncertainty, blowing up the system, and calling it strategy.
A recent WTO report estimates that rising uncertainty will shave 0.7 percent off North American real GDP growth and 0.25 percent globally. The Trump administration will reject those numbers. But they celebrated a 2019 report using the same method to claim Trump’s own USMCA would boost GDP. That is, before tearing that agreement up with new, more uncertain tariffs this year.
A productive economy can’t run on guesswork. Business investment is planned years ahead. A CEO who mimicked the administration’s first 100 days of reversals and confusion would be fired. Globalization, at its best, delivers innovation, scale, and resilience. But that only works when trade policy is stable, predictable, and rules-based. Investment, hiring, and supply chains can’t be toggled on and off.
Congress can end this madness. The emergency powers allowing unilateral executive action should be rescinded. If Congress supports a 10 percent universal tariff, misguided though it may be, it should legislate the tax. The president should be granted Trade Promotion Authority to negotiate new agreements, followed by written implementing legislation and an up-or-down vote.
We’re learning the new regime is not strategic autonomy. It is strategic ambiguity masquerading as toughness and causing instability. Our trading partners don’t pay for that. We pay in terms of foregone investment, jobs never created, and innovations that aren’t profitable in a world where the rules can change overnight.