Lessons from Trump and tariffs – GIS Reports

The U.S. president’s tariff strategy reshapes global economics while creating uncertainty around trade, technology and alliances.

United States President Donald Trump has engaged in a personal trade war with the world. After well over a year, the results remain doubtful. In February 2026, the U.S. Supreme Court ruled that trade policy primarily falls under congressional authority, meaning his Liberation Day tariffs were unauthorized. President Trump’s response has been abusive and shows no willingness to back down, let alone refund the sums already collected. What will happen next, and how is the world going to react?

Although the overall picture remains unclear, it is apparent that President Trump enjoys muscular policymaking, which in his view enhances his image as a swift and effective problem solver.

In early 2025, the U.S. economy was suffering from two major problems: fiscal health and eroding competitiveness. The public finance situation was weak and deteriorating rapidly, with total public debt and the public deficit at about 121 percent and 5.8 percent of gross domestic product (GDP), respectively. Simultaneously, America’s technological leadership was waning, and in some sectors, the U.S. had fallen behind its main competitor, China.

Trump to the rescue

President Trump singled out addressing the trade deficit as the easy and comprehensive fix. True, in 2024, the U.S. trade deficit (goods and services) was substantial: almost $920 billion, 17 percent higher than the previous year and about 3 percent of GDP. However, it was not a significant problem. The average trade deficit over the past 20 years has been 3.4 percent, and in 2024, net capital inflows (excluding treasuries and bank loans) were about $1.45 trillion.

The America First trade crusade has little to do with trade.

The America First trade crusade has little to do with trade. And as the president is embroiled in a Middle East crisis that is accelerating an already changing geopolitical order, it is worth considering whether the administration will stick to its commercial guns. Namely, will a continued trade war remedy the fragile public finance context and strengthen U.S. technological leadership?

Washington’s view on fiscal policy

Regarding public finance, the 2025 public deficit was $1.8 trillion (the same as in the previous year) and is projected to rise to $1.9 trillion in 2026. The 2026 deficit-to-GDP ratio is likely to stay nearly constant (5.8 percent), but the debt-to-GDP ratio is expected to rise. Tariff revenues surged in 2025 and represented 3.7 percent of federal total revenues, and the 2026 primary deficit (the public deficit minus interest payments) may even drop.

Yet the recent Supreme Court ruling will probably prevent tariffs from rising further. The growing public debt and rising interest rates (although America’s public debt currently bears an average interest rate just under 3.4 percent, refinancing bears interest rates as high as 4.5 percent) ensure that interest payments overcompensate for the slight improvement in the primary deficit.

Without spending cuts, President Trump needs tariff revenues or their substitutes to avoid further weakening of U.S. public finances, especially if interest rates rise in the following months.

The government knows that tariffs have failed to improve the trade balance and that the impact on domestic production is doubtful, to say the least. Although some domestic industries have benefited (such as mining and electronics), higher import prices and retaliatory duties imposed by the rest of the world have crippled agriculture, construction and all U.S. producers who relied on articulated supply chains.

President Trump is probably right in considering his trade war a modest victory, as the economy has not suffered much and the budget deficit has stabilized (in terms of GDP). Mr. Trump perceives protectionism as the only alternative to substantial cuts in public expenditure and is likely to stay the course.

American technological prowess

It is far too early to assess the extent to which the current trade policy is affecting the race for technological excellence. What we do know is that technological progress depends on scientists, laboratories and entrepreneurs. It also relies on companies in the tech and industrial sectors that can transform ideas and prototypes into profitable production operations, and that are large and healthy enough to both absorb the consequences of mistakes and finance fixed investments (machinery) and research.

Over the past decade, the U.S. has spent increasingly large amounts on technology. During the same period, the total share of public spending on tech and its research and development has declined from about 11.7 percent to about 10.5 percent, which is good news (companies that strive to please bureaucrats are usually poor innovators).

It is hard to say whether “more” total spending on technology is desirable. Rather, one should pay attention to America’s declining educational standards and its increasing regulatory practices, which do not bode well for the future.

The growing uncertainty in Washington’s economic policymaking has encouraged countries that traditionally relied on importing U.S. technology to reduce their dependence on America, shop somewhere else and develop their own high-tech industries. The outcome of these efforts will take time, but the downsizing of the traditional export markets for American companies is becoming apparent. The U.S.’s technological success was based on risk-taking rewarded by a host of friendly and confident buyers across the globe. Those traditional customers are now more cautious; American vendors will suffer.

President Trump’s efforts to protect his country’s high-tech advantage may bring short-run benefits to selected market leaders (mostly due to reshoring), but the future remains clouded. Producers who rely on protectionism today are likely to ask for public support tomorrow; such demands will intensify as the American tech industry gets into trouble and loses ground. It is the taxpayers who will pay the price, and in turn, productivity may decline further. More protectionism may be Mr. Trump’s intuitive response, but it is a rash and possibly counterproductive slippery slope.

Lessons learned

Mr. Trump’s policymaking has taught two major lessons that will characterize all future scenarios.

First, the world has learned that the leaders of political and economic superpowers may be less than reliable business partners and their actions can lead to unpredictable indirect consequences. On the one hand, opportunities may emerge from this lesson. For example, trusted suppliers can acquire buyers who previously shopped elsewhere, and suitably located intermediaries can exploit their privileged status to engage in triangular trade to help more heavily targeted operators. On the other hand, economic wars tend to disrupt global supply chains and wreak havoc on entire industries, regardless of their political or geographic positioning.

Read more by economics expert Enrico Colombatto

Second, policymakers have realized that tariffs can be a relatively cheap source of revenue, can be useful to remedy temporary public budget crises and do not significantly damage growth. However, as President Trump is finding out, a large share of the tariff is borne by domestic consumers, who often perceive tariffs as a source of inflation. Consumers are voters and tend to complain at the ballot box.

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