A Tariffic Strategy

A ten point plan for a great power bent on using tariffs. (Plus: more Bessent, less Navarro.)

Singapore uses the War Games Strategy. That is, the only way to win is not to play. In other words, Singaporeans engage in unilateral free trade, whatever the rest do. Economically, the city-state punches high above its weight.

The US, under the Trump Administration, uses the Chaos Strategy. That is, the only way to win is to go batshit long enough to get your counterparts to renegotiate amid the chaos. (Below, I discuss potential Trump Administration infighting between Reciprocols and Retardos.)

My preferred strategy, the Everybody Wins Strategy, is probably too idealistic: the only way to win is universal free trade, which means governments get out of the way. Because world leaders play different games, I propose a pragmatic next-best strategy to encourage all players to adopt my preferred approach in time.

I call it the Tariffic Strategy.

Tariffic Strategy Explained

Here are the rules, which should run like an algorithm:

1. Pay no attention to trade imbalances per se.

2. If a counterpart levies a tariff against our goods, levy an equal and opposite percentage tariff against them, that is, reciprocal tariffs.

3. Add or subtract percentage points based on a nation’s absolute improvement (or decline) on the Fraser Economic Freedom Index.

4. Add or subtract percentage points based on a nation’s degree of currency manipulation.

5. Add or subtract percentage points based on a nation’s anticompetitive subsidies to export industries.

6. Add or subtract percentage points based on a nation’s threat to our national security.

7. Add or subtract percentage points based on a nation’s direct investments in our domestic industries (FDI).

8. Add or subtract percentage points based on a nation’s adherence to reasonable environmental standards (internalizing externalities). Higher standards earn tariff relief; lower standards incur penalties.

9. Add or subtract percentage points based on a nation’s consistent adherence to reducing trade barriers over a multi-year period (e.g., 5-10 years). Nations that progressively lower tariffs and align with free trade principles receive a tariff reduction bonus, while those that backslide face a penalty.

10. Offer tariff reductions to nations that enter into transparent, mutually beneficial bilateral trade pacts with us, with bonus points for including dispute resolution mechanisms and commitments to avoid escalation.

Some might argue that the Chaos Strategy gives the Trump Administration the element of surprise. Economist Robert Higgs has long persuaded me that entrepreneurs and investors prefer predictability over what Higgs calls “regime uncertainty.” In short, too much surprise and you’ll spook investors, allies, and trading partners.

By contrast, a long-term commitment to the Tariffic Strategy helps all players know what’s coming with algorithmic precision, and investors can plan or attempt to arbitrage based on a higher degree of certainty about the rules as played by the biggest player (in this case, the US).

Otherwise, the Law of Comparative Advantage still holds. And none of this implies that a fiscal and monetary policy reset is not in order. It’s time.

Details and Devils

It’s easy to sketch a strategy, but far more complicated to implement one. So here are things to look out for:

Complication and Transparency. The Tariffic Strategy risks becoming overly complicated or subjective, which could make implementation challenging or lead to confusion or allegations of bias. To prevent such problems, the criteria should be transparent, clearly measurable, and independently verifiable.

Risk of Retaliation. Reciprocal tariffs can trigger retaliatory cycles, escalating conflicts. Incorporating dispute-resolution mechanisms and clear conditions for tariff reductions should help manage such risk.

Assessing Currency Manipulation. Because currency manipulation is technically complicated, it can be challenging to identify it. This can lead to political disputes. Using objective criteria can provide clarity and minimize conflict.

Subsidy Determination Complexity. Determining what constitutes *anticompetitive* subsidies can be subjective and thus politically contentious. As with other rules, adhering strictly to reasonable, well-known standards can mitigate disputes.

Environmental and Ethical Standards. Judging adherence to pollution standards can differ significantly among nations, risking accusations of bias. Again, reliance on recognized frameworks could help to ensure objectivity and fairness. (Avoid pinning trade policy on carbon dioxide/climate change mitigation.)

All of this would operate within the context of a dollar-as-reserve-currency regime, so I admit that the dynamics of debt, treasury markets, central banking activities, and a strong dollar are beyond the scope of this sketch.

Postscript: Reciprocals vs. Retardos

I worry that behind the scenes of the Trump administration, there is a conflict between two different philosophical approaches to international trade: Reciprocals vs. Retardos. Both accept Trump’s tariff threats at first, but…

The Reciprocals, apparently led by Bessent, aim to reduce trade barriers between trading partners to zero, planting seeds for a vast, omni-win open market. This group believes the US can continue to improve its domestic manufacturing, repatriating some businesses and getting more FDI, while expanding US exports.

The Retardos, apparently led by Peter Navarro, aim to repatriate industries by keeping trade barriers high in hopes that any given industry springs up here at home. Old-fashioned protectionism is not the best idea in such a dynamic global market. Protected industries are propped up artificially, which can make them less competitive—amounting to lower quality and higher prices. Rust-belt voters will cheer for an election cycle, but automation is coming.

We will likely see a natural, albeit imperfect, test between the two approaches. I worry Trump is dispositionally on the side of the Retardos. We shall see.

Update: I had no idea Musk referred to Peter Retarrdo yesterday.