Summary of "Are Trump's tariffs working? This economist laughs at the idea | Power & Politics"

Overview

New Commerce Department data show the U.S. goods trade deficit rose in 2025 to a record $1.2 trillion (up 2%). Mexico has become the U.S.’s top trading partner, exceeding Canada by about $150 billion.

This summary synthesizes arguments by Justin Wolfers (Professor of Public Policy and Economics, University of Michigan) about the effects of the Trump administration’s tariff policies and the broader economic and geopolitical consequences.

Key findings

U.S. goods trade deficit reached $1.2 trillion in 2025, a 2% increase.
Mexico surpassed Canada as the U.S.’s top trading partner by roughly $150 billion.
Tariffs increased in 2025, yet the trade deficit grew rather than shrank.

Wolfers’ central arguments

The tariff policies did not reduce the trade deficit. Despite higher tariffs, the deficit increased — evidence the policy failed to achieve its stated goal.
The common perception that a trade deficit is inherently bad is often misunderstood. Wolfers distinguishes:
- A deficit measured in dollars (the U.S. sends more dollars abroad).
- A surplus in “stuff” (Americans receive more goods).
Countries are not companies; the relevant metric is citizens’ welfare, not the accumulation of foreign currency or bilateral dollar balances.
Focusing on bilateral deficits (for example, with China) is economically misguided. Wolfers uses a grocery-store analogy to clarify why a bilateral deficit is not inherently problematic:

A bilateral deficit can be a misleading target — what matters is overall welfare, not one-on-one accounting between countries.

How tariffs change trade

Tariffs mainly redirect trade flows rather than altering underlying economic fundamentals.
- Example: U.S. imports from Taiwan now exceed imports from China for the first time since 1992.
Retaliatory tariffs and disruptions reduce demand for exporters; firms often end up selling less overall.
Tariffs produce narrow, real harms:
- Manufacturing job losses (Wolfers cites roughly 70–80k lost jobs).
- Damage to specific industries — for example, Canadian boycotts hurt wine and bourbon exporters and reduced tourism (travel counts as an export).

Political effects

The political impact of tariffs is often sector-specific rather than broad-based.
Ordinary U.S. voters may have limited awareness of the harms; affected industries feel the effects more directly.
The White House focus on bilateral deficits is criticized as a misguided political and economic framing.

Geopolitical consequences

U.S. protectionism is pushing trade partners to seek alliances and deals that exclude the U.S.
- Example: Canada and Prime Minister Carney engaging more with the EU and Indo-Pacific nations.
Treating the U.S. as a “bully” risks geopolitical isolation as other countries form alternative partnerships.

Overall assessment

Wolfers concludes the tariffs were a policy mistake driven by misunderstandings of basic economics.
They produced retaliation, disrupted established trade relationships, hurt some U.S. industries, and did not reduce the trade deficit.

Presenters / contributors

Justin Wolfers — Professor of Public Policy and Economics, University of Michigan (guest)
Power & Politics interviewer / host (unnamed in the subtitles)
Additional referenced parties: Mexico’s embassy to the U.S. (posted the trading-partner note); Prime Minister Carney (referenced as leading multilateral engagement)