There is unfortunately absolutely nothing good to say about the announcements U.S. President Donald Trump made during his recent “Liberation Day” event in the White House Rose Garden. Try as one might to “sane-wash” Trump’s economic policies, there is simply no coherent rationale for his supposedly “reciprocal” trade tariffs.
Kim Clausing of UCLA sums it up perfectly: “The largest tax increase in more than fifty years will burden U.S. consumers, generating thousands of dollars in tax increases for the median household.” Michael Strain of the American Enterprise Institute is similarly spot on, noting that these new tariffs “will decrease, not increase, manufacturing employment. They will reduce the competitiveness of manufacturing companies.” And, as for the underlying methodology for calculating the new tariff rates, Doug Holtz-Eakin does not mince words, “They've got an indefensible foundation to an indefensible policy.”
Clausing worked on taxes for the Treasury Department under U.S. President Joe Biden, while Strain and Holtz-Eakin are highly regarded Republican economists. When these three agree so completely, it is a powerful indication that Trump’s latest tariffs represent an impending national disaster.
Interestingly, the day before Trump’s announcement, 50 senators, led by the Republican Lindsey Graham and Democrat Richard Blumenthal, advanced a better bipartisan tariff proposal, aimed at pressuring Russia to seek genuine peace with Ukraine. The overall structure of the proposal is sensible, and its most obvious flaw — it would impose tariffs on countries that import oil from Russia, rather than on Russia itself — is entirely fixable.
Importantly, the Senate bill can have a real impact without necessarily passing the House. Just the threat of congressional action on this front will be enough to get the Kremlin’s attention. After all the disruptions to trade, foreign aid, and relations with NATO and other U.S. allies, Trump needs a win on the international stage. This bill can help him get that, and perhaps Graham, Blumenthal, Trump can share a Nobel Peace Prize if Russia really does sue for genuine peace.
Glenn Hubbard, chair of the Council of Economic Advisers under George W. Bush, and Catherine Wolfram, who worked on related issues as a senior Treasury Department official during the Biden administration, recently set out very clearly the right way to think about how to put pressure on Russia.
Hubbard and Wolfram note that Russia needs ongoing hard-currency earnings in order to purchase armaments and other essential war-related supplies from abroad, and fossil-fuel exports (worth about $600 million per day) are the Kremlin’s only significant source of dollar revenue. The strategy they propose is simple and brilliant:
“The administration should impose sanctions on any company or individual — in any country — involved in a Russian oil and gas sale. Russia could avoid these so-called secondary sanctions by paying a per shipment fee to the United States Treasury. The payment would be called a Russian universal tariff, and it would start low but increase every week that passes without a peace deal.”
Most Russian oil moves via ship, and all these shipments (and the underlying financial transactions) are meticulously tracked by commercial experts. It would therefore be straightforward to ensure that if Russia failed to pay the required tariff on any shipment, all parties to the transaction, including any tanker owner or operator, the insurer of the cargo, and the purchaser, would become liable. If these private parties in turn declined to pay within, say, 30 days, they would themselves be subject to sanctions. Recent evidence confirms that no one — including Indian and Chinese entities — wants to be caught up in American sanctions.
A $20-per-barrel tariff on Russian oil would generate between $40 and $50 billion per year, payable to the US. Ideally, the threat of a Russian universal tariff (RUT) would pressure Russia into serious negotiations, where its removal could be part of a deal that ends Russia’s devastating and entirely illegitimate invasion and brings lasting peace to Ukraine. It would be easy to set this up so that any new military aggression would immediately trigger renewed or increased tariffs under the RUT. To get out from its RUT, Russia just has to stop attacking people.
If Russia continues to negotiate in bad faith, the U.S. would still collect billions annually under the RUT. In that scenario, Russia would at least be defraying the costs imposed on others from its full-scale assault on Ukraine. During COVID, Russia did not cut oil production, even when world prices dipped below $20. Under the RUT, Russia will need revenue more than ever, so there should be no reduction in world oil supplies.
Trump’s “Liberation Day” tariffs were the culmination of a terrible first two months for his administration on the world stage. He badly needs a win to boost American prestige around the world and convince investors that the US has not become an entirely nihilistic and self-destructive place. A slightly improved version of the bipartisan tariff proposal – one that imposes real costs on Russia – would do exactly that.
Editor’s Note: Copyright, Project Syndicate. This article was published by Project Syndicate and has been republished by the Kyiv Independent with permission. The opinions expressed in the op-ed section are those of the authors and do not necessarily reflect the views of the Kyiv Independent.
Andrew Bogrand
