The United States is once again contemplating new tariffs, yet a focus solely on headline trade surpluses obscures a more complex reality. While deficits grab attention, the strategic importance of industries and global supply chain roles are equally critical in Washington's tariff calculus. 

Vietnam, for example, presents a paradox. Its 2024 trade surplus with the US surged to $123.5 billion. As a vital manufacturing hub for apparel, electronics, and footwear – a key alternative to China – sweeping tariffs could disrupt crucial supply chains, a move Washington may deem self-defeating despite the headline deficit. 

Taiwan, with a $73.9 billion surplus, is similarly shielded by strategic necessity. Its semiconductor sector, dominated by TSMC, underpins the US tech ecosystem. Tariffs here risk economic and political shocks, outweighing any perceived benefit from addressing the trade imbalance alone. Mutual dependency in high-tech may discourages tariffs based on trade balances alone. 

On a Knife-edge

The global economy is teetering on a knife-edge, and the stakes could not be higher. Residual inflationary pressures, yawning deficits, the spectre of a global trade war, and escalating geopolitical tensions are converging to create an era of unprecedented uncertainty. Yet, despite the gravity of these challenges, meaningful dialogue between major global powers often feels as distant as the stars.

Federal Reserve Chair Jerome Powell recently remarked on the need for “an adult conversation” about the trajectory of US government debt, underscoring the urgency of economic reform. Meanwhile, China, with one of the world’s highest savings rates, grapples with the challenge of stimulating domestic demand. The question arises: despite their differences, do China and the US have significant mutual benefit from working together?

Enter an audacious thought experiment: President Xi Jinping and President Donald Trump convening a high-stakes economic summit at none other than Mar-a-Lago.

The short answer is no, yet the long answer is entangled in a web of unintended economic shifts.

When the U.S. government imposes tariffs, the immediate assumption is that these import duties will protect domestic industries, revitalize manufacturing, and punish foreign competitors. However, economic dynamics are rarely as straightforward as political intentions suggest. While tariffs may trigger structural shifts in the U.S. economy, any positive outcomes would likely arise as unintended side effects of complex market reactions—not from the tariffs themselves.

Tariffs are often framed as tools for protecting local jobs and industries, but they essentially act as hidden taxes on American consumers and businesses. By increasing the cost of imported goods—from consumer electronics to raw materials—tariffs force households and companies to shoulder higher expenses. This increase in prices means that money which could be spent on domestic goods and services is instead diverted to offset the higher costs of imports.