What if customs duties were not just a commercial weapon... but also a financial lever?
This is the hypothesis that some economists are putting forward regarding Donald Trump's strategy during his term. Hold on tight, we're going to simplify this together, using simple words and a few concrete examples.
1. What exactly are customs duties?
These are taxes imposed on products imported from another country. For example, if the United States imposes a 25% tax on Chinese steel, this makes that steel more expensive for an American company to purchase.
Trump massively increased these tariffs, especially against China, claiming he wanted to protect American industry. But some believe he also had a more subtle economic objective…
2. More taxes = more money for the state
Let's imagine the government rakes in billions of dollars from these new taxes. The result? It has more tax revenue without having to raise taxes on citizens.
It's as if the state has found a new piggy bank, without touching the wallet of the average American.
3. Borrow less, or borrow more cheaply?
When the government has more money in its cash register, it can either reduce its debt, borrow less, or negotiate interest rates better.
This is where another player comes in: the Federal Reserve (the Fed), which sets the level of interest rates. If the economy slows down because of taxes (which is sometimes intentional), the Fed can decide to lower rates to get things moving again.
Example :
Trade war weakens growth?
The Fed reacts by lowering rates to support the economy.
Result: the State can finance itself more cheaply.
4. A risky bet… but a strategic one
Some therefore see this strategy as a form of "economic arm wrestling":
Imports are taxed (immediate revenue)
We are weakening growth a little (intentionally)
We are pushing the Fed to lower rates (stimulus + cheaper financing)
It's a bit like pulling a rubber band... hoping it springs back at the right time without snapping.
5. And what about consumers?
The downside is that prices for some imported products increase, which can affect businesses and households in the short term.
And if the trade war lasts too long, it could harm the real economy.
A double-edged strategy
What some describe as an economic gamble is not without risks. But the idea that tariffs can indirectly influence monetary policy and ease the burden of public debt is worth exploring.
Whether one approves of the method or not, one thing is certain: Trump has redefined the rules of the game between trade, public debt and interest rates.
And you, what do you think of this strategy?
Tactical genius or ticking time bomb? Let's discuss it!