Trump’s Tariffs Give Him a New Way to Dole Out Reward and Punishment
Mark Schiefelbein/AP
Just a few months ago, Americans’ optimism about the economy was on the rise. The stock market boomed after Donald Trump won the 2024 election, and measures of business confidence rose. But all the positive sentiment came with an asterisk: It assumed that Trump would not follow through on his campaign promise to dramatically raise tariffs. Yet on Wednesday, Trump unilaterally ended nearly a century of international trade norms by announcing a baseline 10 percent tariff, with rates double or triple that being applied to several major trading partners. This marked a significant escalation over the tariffs he had already pushed through, even as US stocks have tumbled on fears of inflation and recession. Trump, it turns out, wasn’t bluffing.
If you think about politics traditionally, Trump’s tariffs don’t make sense. Presidents’ political fortunes are generally tied to the strength of the economy, so they can be expected not to take actions that almost all economists predict will cause economic pain, both short and long term. So if Trump is willing to hurt the economy, he must be getting something he wants even more in return.
That thing is power. With tariffs, Trump can exercise a kind of corruption that the country hasn’t experienced in some 150 years—a kind of control that is ultimately incompatible with both democracy and prosperity.
With tariffs, Trump is poised to trade a strong economy for one run on loyalty and retribution. Trump, a president who rules like a mob boss while claiming vast new powers, is transforming the government into a tool of reward and punishment. Already, prosecutions against Trump’s friends are being dropped, while those who have crossed him find themselves the target of vindictive executive orders. Media critical of Trump are under investigation by a weaponized Federal Communications Commission, while universities are being bullied into shutting down free speech. Tariffs will scale this weaponization across the entire economy. Viewed in this light, Trump’s willingness to sacrifice the economy in exchange for control over it makes perfect sense.
Even those close to Trump see this trade for what it is. “Tariffs are a tool the president enjoys because it’s personal power,” Rep. Ryan Zinke (R-Mont.), who served in Trump’s first-term cabinet, told HuffPost Tuesday. “It’s personal―he doesn’t have to go through Congress. He can exercise personal power.”
But history shows that an economy run on favors and grievances is ultimately a poor one. “If you look around the world, it’s really clear that the places that are rich have good governments,” says John Joseph Wallis, an economic historian at the University of Maryland. “What Trump is doing is not governing well. He’s like a third world dictator. He’s trying to behave that way.”
Wallis’ research focuses on understanding why fairer political systems tend to create the strongest economies. His conclusion is that the answer lies in allowing everyone to operate by the same set of rules—what are known as impersonal or general laws. Just as American democracy was only truly realized by the 14th Amendment’s promise of equality and the expansion of voting rights to all citizens, an advanced capitalist society requires that every person and company operate under the same set of financial rules. The rules do not necessarily have to be unbound, laissez-faire capitalism without redistribution, but the rules and regulations must be evenly enforced.
Before the 19th century, no economy functioned that way, as governments manipulated market opportunities to build and secure political support. Take the example of starting a business. Today, anyone seeking to form a corporation files basic paperwork, pays a standard fee, and voila, they have a business. But, Wallis explains, “Nobody in the United States got a corporate charter that way before the 1830s. Every single corporate charter that was created was an act in the state legislatures.”
It’s easy to see how such a set up makes it easy to manipulate economic power for political gain. “The real danger of corruption is when the government passes laws that treat people differently, and when a government treats different people differently, in order to build a political coalition,” Wallis explains. An economy run on political favors is unpredictable, which causes slowdowns and inefficiency. Major investments are made based on political concerns, slowing economic growth. Ultimately, a country where every economic actor is at the mercy of an autocratic leader is not one investors can trust, much less its own citizens.
In an upcoming paper, Wallis and Naomi Lamoreaux, a historian at Yale and the University of Michigan Law School, examined laws passed by state legislatures between 1830 and 1850. Over that time, the number of pages of legislation nearly doubled, with 90 percent of the increase coming from bills benefiting specific people, businesses, groups, or localities, “granting them pensions, divorces, corporate charters, banking privileges, and the like.” This favoritism not only sparked outrage, it also hampered the economy, the paper explains, because in order to dispense economic favors, there must be “barriers to the free flow of economic resources.”
This is systematic corruption, woven into the economy. This is different than the personal abuse of public office for private gain. From charging business leaders $5 million to dine with him at Mar-a-Lago to his side business as a crypto hustler, Trump’s history of such corruption is extensive. Elon Musk, who has leveraged a position to vacuum up contracts for his businesses, offers another textbook example. But the greater threat to the country, Wallis warns, is not the personal corruption of one or two powerful people, but corruption of the economic system itself. That would take us back to the 19th century.
Wallis and Lamoureax conclude their forthcoming paper with a warning for our time: “Capitalism cannot thrive in polities where the pressure to hold factions together leads elites to manipulate the economy for political ends—where some elites gain access to profitable opportunities that are closed to everyone else.” They add: “But neither are these polities likely to remain democracies. Prone to instability, their fate is often to slide back into autocracy.”
No advanced democracy with general rules has yet slid back into autocracy and personalized rules, says Wallis. In western Europe, for example, nations with general rules resisted the rise of fascism in the 1930s, and, once Nazi Germany was defeated, returned to democracy and capitalism. Countries that lacked general rules at the time—including Germany, Italy, Austria, Spain, and Portugal—succumbed to fascism and took decades to return to democracy. If the United States is not careful, it could be the first to fully backslide.
Under Trump, tariffs will be a potent and unilateral mechanism for reintroducing systematic corruption into the economy. This is a two step process. First, Trump can raise or lower tariffs unilaterally. Second, he can grant waivers and exemptions, forcing people, corporations, localities, and even nations and foreign actors to come seeking reprieve on bended knee.
Tariffs didn’t always operate this way. Until the 1930s, the United States generally had high tariffs, imposed by Congress. But in the throes of the Great Depression, the United States changed course and began building a new tariff system that lowered rates but gave presidents more power. Over the following decades, new laws delegated additional emergency authority over tariffs to the president.
Under this regime, tariffs were low, and while the executive branch could push waivers to particular businesses via the Department of Commerce, the system was “regular, routine, and bureaucratic and above board, for the most part,” says Douglas Irwin, an expert on the history of trade policy at Dartmouth.
But that began to change during Trump’s first term. In 2018, Trump wielded little-used powers to impose tariffs on aluminum and steel imports, as well as imports from Canada, Mexico, China, and Europe. Requests for waivers skyrocketed, and those who hired well-connected Republican lobbyists received them. At other companies, CEOs cozied up to Trump, as Apple’s Tim Cook did while seeking exemptions for the company’s Chinese-made electronics. Inspectors general reports and academic research found the tariff exclusion process was opaque and possibly corrupt. One academic study concluded that firms that backed Republicans were more likely to receive waivers, which the authors said was “strongly indicative of quid pro quo arrangements.”
Trump has been a proponent of protectionist trade policies for decades. The United States, he has long held, is being taken advantage of by foes and allies alike. His pitch to voters in each of his campaigns was that he would get a better trade deal with every country. But a better deal for whom? Businesses may discover they get exemptions if they eliminate DEI programs, donate to Trump’s political organizations, or buy his meme coins. Countries may find that they get exemptions if they are friendly to Trump’s business interests, as Argentina was in his first term. That would indeed be a better deal for Trump personally. But the best deal for Trump, he seems to believe, would be the power that comes from picking winners and losers. It would also erode the strength of the US economy and ultimately its democratic political system.
“You’re adopting economic regulations for political purposes, not for economic purposes,” warns Wallis. “So you’re going to benefit some groups at the cost of others, because those groups support you or the other groups oppose you, and that then makes capitalism go away. Instead of competing on high quality and low price, now you’re competing on who’s politically connected and not connected.”
Tariffs are not the only way that the Trump administration is manipulating the economy for political gain. Musk’s massive and indiscriminate DOGE cuts hurt red and blue states alike, but Republican lawmakers have been able to appeal to Musk for reprieve while their Democratic colleagues get the cold shoulder. The result is a system in which government funding is spent not based on Congress’s allocations, but on which lawmakers are loyal to the president. In unconstitutional executive orders, Trump has hamstrung the economic fortunes of law firms that have in some way crossed him—a threat to conform (as Paul Weiss and Skadden did) or face the wrath of the government. Trump targeted the mergers of companies he disliked in his first term, and large firms already fear a repeat of this political interference. Sensing the danger, billionaires behind the world’s biggest corporations were among the first to obey in advance.
Congress, of course, could claw back tariff authority from the president with legislation, and Trump’s dubious legal justifications for his new tariffs could presumably be challenged in court. But absent these interventions, tariffs could prove to be his most powerful tool yet, as they ensnare nearly every business and economic player.
If Trump’s first term was a gift to elites in the form of massive tax cuts, his second term may be defined by picking who those elites are through demands of loyalty. Tariffs—as well as other authoritarian tools—are the means. Being wealthy is no longer enough to do well under Trump; this time, you must also be loyal. If the economy suffers, Trump’s leverage over a desperate American business community will only grow. And he’ll be there to dispense reprieves and riches—for the right price.