TRUMP’S TARIFF CHAOS

Customs duties have two primary effects: the revenue effect and the protectionist effect. The revenue effect refers to the fact that customs duties generate tax income, which means increasing tariffs can boost public revenues. While this was the original purpose of tariffs, their modern role has shifted more toward raising the prices of imported goods in order to protect domestic producers.

It’s well known that former U.S. President Donald Trump imposed additional tariffs with the aim of protecting American industry and increasing the share of domestic products in U.S. consumption—the world’s largest consumer market. In this sense, it's fair to say that he used tariffs as a weapon against the very globalization the United States helped build.

As a Turkish proverb goes, “Thursday’s arrival is clear from Wednesday.” The early signs of today’s trade wars were already visible during Trump’s first term. In an article we published in June 2023, we wrote:

“At the start of the new millennium, globalization gained serious momentum, especially in economic terms, and this trend continued for about 20 years. After the events of September 11, 2001, the U.S. began to approach foreign trade primarily through a national security lens, ignoring the protective function of tariffs. Meanwhile, China’s accession to the World Trade Organization (WTO) further tilted the U.S.-China trade balance in China’s favor.

In the early stages of this shift, U.S. companies capitalized on China’s cheap labor and manufacturing capabilities, earning huge profits by selling these products globally—often without even importing them back to the U.S. However, over time, China converted this manufacturing power and technical expertise into strong global brands, positioning itself as a direct competitor to the U.S. Trump, a ‘businessman president,’ couldn’t stand by and watch—and he effectively kickstarted the collapse of globalization. Naturally, this approach conflicted with WTO rules, but the organization lacked the strength to oppose the rebellion of one of its own founders.”

How Did We Get Here?

As mentioned, the main driver behind today’s trade conflict is the persistent U.S. trade deficit over the past 25 years. This deficit can largely be traced back to the post-9/11 era, when U.S. trade policy started to prioritize national security over economic balance—pushing the fiscal and protective functions of tariffs into the background.

Other contributing factors include:

• The NAFTA agreement working against U.S. interests,
• The European Union’s rise as a major economic and political power,
• And the U.S. failing to respond effectively to these shifts.

China

Trump’s top priority was closing the massive trade gap with China. There’s not much need for explanation here—the numbers speak for themselves.

NAFTA

The North American Free Trade Agreement (NAFTA), which went into effect on January 1, 1994, also became a point of contention. While Canada and Mexico benefited significantly, the agreement widened the U.S. trade deficit. Ironically, a key reason for this imbalance was that American investors preferred setting up production in Mexico and Canada instead of in the U.S.

European Union

A country-by-country analysis shows that EU member states occupy a significant share of U.S. trade. As of 2023, three EU countries were among the top 10 export destinations for the U.S., and one was among the top 10 sources of imports. Interestingly, before Trump, the U.S. and EU were close to signing the Transatlantic Trade and Investment Partnership (TTIP)—but instead, relations turned toward conflict and tariffs.

How Are Tariff Rates Determined?

Tariff rates are mainly based on the trade deficit with the target country. The method references five academic studies—three related to trade elasticity, and two focused on globalization and trade wars.

For example, in calculating tariffs on China:

• The U.S. imports $438 billion worth of goods from China annually.
• The trade deficit is $295 billion—about 68% of total imports.
• Halving that figure results in a 34% additional tariff.

This formula is applied to all trade partners. The result typically falls between 0 and 99 and is then halved to set the final tariff rate.

Turkey

During Trump’s first term, Turkey was indirectly affected by U.S. tariffs on Chinese goods. In response, Turkey imposed retaliatory duties on American imports in 2018. Despite this, bilateral trade volumes remained largely stable.

According to Turkish Statistical Institute (TÜİK) data:

• In 2024, Turkey exported $16.349 billion to the U.S.
• It imported $16.227 billion, resulting in a trade surplus of only $122 million.

Applying Trump’s formula:
((122 / 16,349) x 100) / 2 = 0.37% — a negligible figure.
Thus, Turkey was included under the standard 10% additional tariff category.

Interestingly, officials and business leaders in Turkey see this as a potential advantage—because many of Turkey’s competitors are facing significantly higher tariff rates in the U.S. market.

Conclusion

By reigniting the trade war, Trump has effectively planted a bomb in the heart of the global trade system and the prosperity it was meant to create. As the world rapidly shifts from globalization to aggressive protectionism, a crash seems almost inevitable.

But is this really about protecting American jobs—or is it a bold tactic to push countries back to the negotiating table? Only time will tell.

As the U.S. and China continue to escalate their tariff war, other countries have been given a three-month reprieve. Still, we often focus solely on the trade side of the issue.

But here’s the bigger concern:
What Americans fear most is inflation.

Despite earlier rate hikes to cool down post-pandemic inflation, the Federal Reserve still hasn’t lowered interest rates. Imposing high tariffs on imported goods can only lead to cost-push inflation—when production costs rise and prices follow.

And that might be the most dangerous part of it all.