When I got this episode on the calendar a month ago, my vision was, “Let’s get three of the smartest, most thoughtful liberals I can find on the topic of economic statecraft, and we’ll do a full assessment of the first year of Trump’s second term.” The idea was to take each of the domains — tariffs and the trade war, export controls, industrial policy — and do two things: get an accurate picture of what’s actually happened, and hear how Biden admin insiders and Democratic thinkers see them. Where are there continuities between administrations? Where have their expectations been overturned? And what lessons are they incorporating into their own worldviews?

Then, in a totally novel example of economic statecraft, we grabbed Maduro and seized Venezuelan oil, so we had to discuss that too.

As a result, we’re doing a lot in this episode, and we leave some important questions out: the legal challenges to the current tariff regime, for example. But I think readers will come away from this episode with a clear view of the old and new tools of US policy in the realm of economic statecraft.

Daleep Singh is an economist who served in two separate periods in the Biden Administration as Deputy National Security Advisor for International Economics.

Peter Harrell served as Senior Director for International Economics at the White House, jointly appointed to the National Security Council and the National Economic Council.

My colleague, Arnab Datta is Director of Policy Implementation at IFP. He’s also the Managing Director of Policy Implementation at Employ America.

What is economic statecraft?

Venezuela

China and tariffs

Trade deals

Industrial policy

Lessons learned

Thanks to Harry Fletcher-Wood, Shadrach Strehle, and Jasper Placio for their support in producing this episode.

For a printable PDF of this interview, click here:

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Daleep Singh: It is the use of economic tools, both punitive and positive, to achieve a geopolitical objective. Most people are familiar with the punitive tools: sanctions, tariffs, export controls, investment restrictions. They try to coerce a foreign country or actor to behave differently, because of the prospect of being penalized or excluded from the US financial system — or US technology, if we’re talking about export controls, or trade, if we’re talking about tariffs.

The positive tools are less appreciated, but they’re more potent, because they derive their strength from who we are as a country — our power to inspire, attract, and create. These are tools like investment subsidies, infrastructure financing, price floors, offtake agreements — the tools that you hear about when industrial policy is the conversation. I think we’re out of balance in terms of the frequency and potency of punitive tools, relative to positive. That’s partly why I’ve been pushing for a doctrine of economic statecraft that gives us a chance of more strategic coherence.

Daleep Singh: Starting with the late 20th century — this was the post-Cold War unipolar moment. The notion that many people held was that this was the “end of history,” and we were undergoing a process of ideological convergence. We’ve left that world, and we now are back to the “old normal” of intense geopolitical competition.

Because today’s great powers are mostly nuclear powers, conflict is channeling away from the battlefield and into the arena of economics — including technology and energy — because confrontation in those domains is not existential. I think you’re starting to see all across the world, not just in the US, much more frequent, potent use of economic statecraft, particularly punitive statecraft, to achieve geopolitical goals.

What we’re seeing in Year One of the second Trump term is a maximalist approach to using many of these tools. What we’ve seen in Venezuela is a form of economic statecraft that I’ve never even thought of prior to the last couple of weeks.

We’ve removed and captured a head of state.

We’ve declared that we’re running the country.

We’ve issued an Executive Order that freezes the oil revenue in US accounts.

It seems as though we’re shielding the assets from creditor claims, and we’re now giving the Secretary of State a debit card to decide how to spend the money.

That is an entirely different category of economic statecraft than we practiced in the previous administration. I can give you 10 other examples.

Peter Harrell: Venezuela is an interesting case study in what did and didn’t work on economic statecraft. President Trump and the people around him have wanted to dislodge Maduro going back to Trump’s first term. They had this maximum-pressure sanctions campaign on Maduro. They started trying to reduce Venezuela’s oil exports. They had some success in that, and in putting economic pressure on the government in Caracas, but were unsuccessful at achieving their stated outcome, via economic pressure, of seeing Maduro go.

Last year, Trump tried to negotiate with the regime, then seemed to get back to trying to use sanctions to put more economic pressure on Venezuela. They’d done some more designations of tankers, were threatening more sanctions, but it was not working. In the couple of months before Trump started militarily** seizing Venezuelan oil tankers**, despite the economic pressure, you saw Venezuelan oil exports rising, almost back to where they’d been a year before.

Similarly, last year you saw Iran exporting the same volume of oil it had exported during the Obama nuclear deal — almost 2 million barrels a day — despite Trump saying, “We’re going to maximum pressure on Iran.” What’s going on is that essentially all of the oil from Venezuela and Iran — about 80% from Venezuela, 90% from Iran — is going to China. China, over the intervening years, had built enough of a fleet — we call it the “ghost fleet” or the “dark fleet” — operating outside of US jurisdiction, that the sanctions on ships were no longer preventing the volumes of oil from going there.

Trump had a choice. He could either get tough with China, using economic pressure — we do have a lot of economic leverage still on China — to get them to buy less Venezuelan oil. Or he could start taking the ships militarily. Looking at the failure of sanctions to stop these flows, and his unwillingness to blow up the trade deal with China — because if he got tough with China over Venezuela and Iran, it would probably blow up his trade deal — he chose, late last year, to go back to this 19th-century version: “We’re going to seize the ships, and disrupt trade that way.” I think he gave that a couple of weeks, thinking that maybe literally embargoing the oil in a military sense would force Maduro to go. Maduro didn’t go, he went in and seized Maduro. Now he seems to be asserting that he’s going to have a client local government down in Caracas.

The economics of this are going to be quite interesting. The idea seems to be that the US will broker Venezuela’s oil exports, the proceeds will go into an account in the United States, and Marco Rubio will get to decide what to spend the money on: presumably American agricultural products, medicine, and oil-field equipment.

I think, in a weird way, there is a precedent for this. After George W. Bush took over Iraq in 2003, they did something similar for a couple of years — more internationally monitored, but a similar mechanism. Obviously going in and seizing a leader is unprecedented in modern history. Let’s put that aside. It’s like what went on in Iraq, except it’s unclear what the exit strategy is. Trump may want to do this long-term, and there seems to be much less pretense about normative goals other than controlling the resources down there. That is strikingly different to anything we’ve seen in the United States since at least prior to World War II.

Arnab Datta: As Daleep and Peter alluded to, this isn’t a new effort of the administration — this was something they were trying in the previous administration as well. But I start with President Trump’s singular focus, which is to get this oil to the market to bring prices lower. That impulse is understandable. Americans regularly cite cost of living as their number one concern. But prices in the oil market are low now. They’re averaging around $2.81 a gallon, which is as low as it’s been since March 2021.

So is this the place to be bringing prices down? There’s a hidden cost to adding more foreign product to the global market and bringing prices down, and that’s our energy security. Since President Trump came into office, his strategy for more oil has been foreign oil production. His first week in office, he pleaded with Saudi Arabia and the Organization of the Petroleum Exporting Countries (OPEC) to produce more. They’ve been producing more. As you go lower, the price becomes too low for our domestic producers to get to break-even points.

For the shale sector particularly — following the shale revolution, which made us the number one oil producer in the world — you get to a level below $60 a barrel where they start to cut back production. The cost of that to American consumers — whether you’re refilling your tank or you’re an industrial producer — is you’re now at the whim of these foreign governments. OPEC, in a year, could decide to cut production. With our domestic shale sector weakened, they’ll be much less responsive to fill that gap. You’ll see prices go through the roof. Pursuing the lowest price at all costs has energy security implications. That’s where I’d fault this strategy.

An alternative approach would be to capitalize on the fact that we have become the world’s number one oil producer and try to build that resilience here at home. To the extent that we are trying to secure more resilience with oil abroad, maybe we should look to countries like Canada — which we already have an integrated oil market with— as a stable country. As Peter mentioned, there’s no exit strategy for us in Venezuela. In a year, if the government falls, we’re not going to have the same level of access.

Daleep Singh: These oil assets in Venezuela are not “turnkey” assets, they’re distressed assets. The estimates are that at least $100 billion of capital expenditure is going to be needed to rehabilitate productive capacity back to where it was a decade ago.

Daleep Singh: During the post-Chavez era, investment in the productive capacity of these oil fields has been extraordinarily low. They’ve fallen into disrepair. What we’re talking about in Venezuela is some of the heaviest oil on earth. It requires upgrading of the physical infrastructure to produce oil we can refine in the US. This is going to take years, and probably over $100 billion of capital expenditure (capex). Even if the US government induces**Chevron** and**Exxon** to pay for some of this, they’re not going to do so without some form of insurance. A first-loss guarantee, development finance corporation, political risk insurance — these are all examples of positive economic statecraft, but they incur costs to the US taxpayer.

The costs of an occupation — logistics, troops, aid — are immediate, but revenues are years away. There’s a massive mismatch. Then, as Arnab says, there’s the price of success. If the US does manage to resurrect oil production back to pre-Chavez levels, what does that do to the production incentive of shale producers in the Permian with break-even production between $40-60 a barrel? We’re already about to breach below that threshold.

Daleep Singh: The best estimates are that Venezuela is producing about 900,000 barrels per day, some outsized share of which is going to China. Only about 200,000 barrels per day is hitting the global market. The ambition is to return production levels — the peak was 2-3 million barrels per day pre-Chavez. That’s what has a $100 billion-plus price tag.

Arnab Datta: To give you one piece about how degraded the Venezuelan oil infrastructure is, it was reported a couple of years ago that their pipelines leak oil every single day: every day there is a separate leak. The idea that US taxpayers would subsidize that production, rather than any number of efforts we could take to boost the resilience of our domestic sector, is pretty absurd.

Peter Harrell: It’s also been interesting to see the news around some of the energy companies being reluctant to go back into Venezuela. Unsurprisingly, it looks like some of the trading houses that are brokering oil have been involved in some of the trades, and refiners will buy the oil.

But if you’re an energy major that’s going to go in and expend capital to try to bring that production up, you’re looking at a time horizon that is far longer than Donald Trump’s presidential term. They’ll need to understand what the long-term political situation in Venezuela is going to be. The last thing they want to do is start putting money in the ground, Trump is out of office, and the assets get nationalized again.

Daleep Singh: Peter, it seems to me the message coming out of Washington to the oil majors is, “If you want to satisfy your claims as a creditor, you need to fund the occupation and reconstruction now. If you don’t pay up, we’re not going to help you recover your seized property.” In other words, this is an ask of publicly-traded companies to act as the financing arm of the US military. That’s a pretty tough sell for corporate boards that have fiduciary duties to shareholders, not to the**State Department**.

Peter Harrell: That is very much the messaging we’re seeing out of the administration. They are suggesting that if the companies with claims want to get paid, they had better start putting new capital down there. I have no idea exactly how individual energy majors marked these losses, but probably most of these companies — even though they have very large headline claims against Venezuela — marked them down to pennies on the dollar. If you’d asked them a year ago, they didn’t think they were ever going to be paid on this. They are focused more on, “Do we want to put real dollars in Venezuela?” than on the paper value of these claims.

Daleep Singh: It’s a little dangerous to describe the actions in Venezuela as purely about resource denial to China — the migration flow and supposed drug flows were a big part of what this administration defined as our strategic objectives. But you can draw a through-line between what the administration’s talking about with the oil in Venezuela — and controlling 30% of the world’s proven oil reserves as a consequence, if we’re “running” the country — and what the administration is talking about, for example, in Greenland, which is the only plausible stand-alone alternative in terms of rare earths and critical minerals that could challenge China’s scale.

If you put those two together, you begin to see more of the contours of this Trump corollary to the Monroe Doctrine: in our hemisphere, we are going to control all of the resources needed to secure our national security and economic growth potential. That may be overstretching the rationale, but when you listen to administration officials, including the president, that’s the impression I get.

Arnab Datta: China has, over the past half-decade, been making attempts to insulate itself from this type of oil market disruption. They have built capacity for up to 2 billion barrels of crude oil in their reserves. They’ve been building up the stored product in that reserve over the past five years, to 1.4-1.5 billion barrels of oil. Recent estimates have claimed 500,000-1 million barrels per day would be added over the next year or two to those reserves. They are stockpiling. This is a globalized market, so it’s not like you cut them off from Venezuela and they’re not going to be able to access crude any more. They’ve built a sizable buffer stock to weather disruptions, and then they can respond in their own way to secure it with other countries. It’s important to view it in that context — China has been building domestic resilience to this type of effort.

A map of Phase I and II Chinese oil storage sites

[Arnab and Skanda Amarnath came on a year and a half ago to discuss the American Strategic Petroleum Reserve, a set of massive caves, mostly along the Gulf Coast, where the US stores its own oil reserves.]

Peter Harrell: In the short term, China is one of the world’s largest net energy importers, and as a large manufacturing power, is a massive beneficiary of global low energy prices. I hear this meme, “Maybe long-term, this is about building leverage over China.” I not only think there isn’t a ton of leverage to be gained over the long term, but, in the short run, it’s quite good for China to see more production.

Daleep Singh: One caveat is that China is a massive creditor to Venezuela. To the extent that the executive order wipes out China’s ability to collect oil in exchange for debt service, that is a de facto default. It does give negotiating leverage to the administration.

Peter Harrell: What they’re doing on the economic front is derivative of their overall approach to China. Many of us who watched Trump during his first term thought he would come in quite hawkish on trade policy, with tariffs, on export control, and with other tools, like restrictions on the use of Chinese technology here in the United States. In some sense, that is what he did. China, along with Canada and Mexico, was the first country that he increased tariffs on early last year. Then there was a very brief trade war where we went up to 145% tariffs on many imports, back in April.

But one of the big macro stories of the second half of last year was that Trump decided he wanted a détente with China, something that more resembles a managed trading relationship than a high-pressure campaign.

We’ve seen Trump back off on tariffs. They are still higher than they are on most other countries — although the differential on tariffs between China and countries like Vietnam has gotten small enough that it’s not clear how disadvantageous it is to China anymore. Then just yesterday, on January 13th, they put in the rule finally authorizing**Nvidia **to sell high-end AI chips to China. We see an administration that has tools that it did deploy earlier this year. But the story more recently has been a much more moderated approach, and a desire to see some, at least temporary, détente with China.

Daleep Singh: I was smiling when you asked the question, Santi, because I don’t have a clear idea of the strategy vis-à-vis China. I could give you a flippant answer and say, “We’re talking about one man’s reaction function,” to use a central banking term. “I want to get on Mount Rushmore, I want to win the Nobel Prize, and I want a dynasty.” The symbolism of a Nixon-to-China — a Trump-goes-to-China moment, might give him objective number two.

China’s had a very good trade war. Growth has held up close to 5%. That exceeds all of the expectations at the start of last year. Net exports are about a third [of that growth]. That’s a share we haven’t seen since the China shock of the 2000s. China is literally exporting their way out of a real estate morass. The way they’re doing that is reorienting exports away from the US — to countries that are transshipping them to the US, the Association of Southeast Asian Nations (ASEAN), Europe, or the Global South.

In the process, China continues to gain global market share in the sectors that they deem most strategic. If you look at ships, cars, drones, machinery, pharmaceuticals, chemicals, lagging-edge chips, or minerals processing, China’s *gaining *market share, from a baseline of one third of global manufacturing production — more than the US, Japan and Germany combined. To me, that’s a pretty good year for China, in the midst of the largest tariff increase since 1934.

Daleep Singh: I don’t think it’s especially controversial that the tariffs and export controls hurt China, particularly at a moment when its domestic economy is struggling. The structural weaknesses from the demographic trajectory, de-leveraging going back to the property boom after 2008, and the de-risking that’s taking place — those are all drags on growth. [Statecraft took a deep dive into the Chinese economy with Dan Wang.] External frictions, particularly export controls — the crown technological jewels of the US no longer flowing to China in the way that they used to — harm China’s ability to grow, raise its productivity trend, and escape this demographic trap.

But I wouldn’t go so far as to say that it means it’s all working — because they believe they still have a strong hand, as evidenced by the fact that they were able to get at least some partial licensing of H200 chips in exchange for not very much in return — some soybean purchases, the resumption of rare earth supply, and a trip to Beijing for the president in Q1.

Daleep Singh: Definitely. But we’re trading chips for rare earths. We’re playing tit-for-tat. The question is, who has escalation dominance? Beijing’s self-perception is that they have greater tolerance for pain, and perhaps that they have more policy space to cushion the downside risks. I don’t think they flinched very much in the past year, and I don’t think the fact that they don’t want tariffs and export controls contradicts that.

Daleep Singh: The Chinese State Council is much more focused on market share in strategic sectors than they are on monthly Consumer Price Index numbers. Look at China’s trade surplus. Never before in economic history have we seen a manufactured goods trade surplus of $1.2 trillion, which is what China registered last year. If you look at specific sectors, China continues to grow its share [of global manufacturing] in:

Solar panels, it’s 80%,

Electric Vehicle (EV) batteries, about 70%,

EVs, about 70%,

Electrolyzers, 50%,

Shipbuilding, 60%; and

Drones, over 70%.

I don’t know what people are referencing when they say that the more hawkish levels of tariffs have caused lasting harm to China’s own strategic objectives. It may have dented China’s export growth temporarily. But China is still successfully transshipping quite a few of its exports to the US through Vietnam, Malaysia, and many ASEAN countries. It’s dumping its excess supply to Europe and the Global South. The year-over-year growth in Chinese exports to Africa and the Global South is nearing 30%; to Europe, it’s up double digits.

I don’t see any evidence of a domestic manufacturing renaissance in the US such that we can substitute domestic production for foreign imports. I don’t see much evidence that exporters to the US, outside of Japanese automakers, have absorbed the cost of tariffs into their profit margins. I don’t even see any evidence that US importers in tradable goods categories are absorbing the higher tariffs into their own margins. In most cases — think about an industry like apparel or food — margins are very thin. These are highly competitive categories. They can’t afford to absorb higher tariffs into margins, therefore they’re passing it on to consumers. We see that in both the inflation and the growth data.

Arnab Datta: [On the administration’s choice of tools,] the Trump administration certainly believes that they’ve got a toolkit and they’re going to use it in an aggressive way. When you look at some of the deals, for example, the MP Materials deal that they cut back in August, that Peter and I did a deep-dive into, there are different tools as part of that transaction. It’s a multi-billion-dollar deal that includes:

A loan,

An equity investment,

A price floor for mined neodymium and praseodymium,

A guaranteed offtake agreement for finished rare earth magnets; and

A guaranteed EBITDA.

The authorities that they’re relying on for that — the Defense Production Act (DPA) —** **has never been used in this way, to take an equity stake in a company, for example.

But to pick up on Daleep’s point, what is the purpose of this in the context of critical minerals markets? They’re making big bets in individual companies, but these companies are still operating in a Chinese-dominated market. There doesn’t seem to be as much of a policy effort to reorient that market away from China towards something that is more functioning, free, and competitive.

Where’s the allied partnership? It’s very difficult to go to China’s level of scale. But if you take the critical minerals market, you have:

Everything that we’re trying to do,

The European Union, which is pushing for $300 billion in public-private mobilization to counter the Belt and Road Initiative,

Canada committing $2-4 billion,

Korea and Japan.

There’s hundreds of billions of dollars in commitments to counter China. The US should be serving a coordinating function to build this market infrastructure. But you’re not seeing that. What is the purpose? Outside of cutting a deal here and there, it’s not totally clear to me.

You hear people in the administration sometimes allude to “technological advantage.” They managed to convince the president not to export the Blackwell chip, but they gave this license for the Hoppers. Our colleagues at IFP have written great reports: this could eliminate our compute advantage — the one advantage we have in the AI race. What is driving these two decisions, which are very different?

Daleep Singh: On export control policy, we’re shifting from a strategy of — you can call it “containment” — small yard, high fence around technologies that are foundational for our national security.

Daleep Singh: That was the term that we used in the Biden years. That’s now evolving to a strategy of monetization. If you want a metaphor, it’s something like a tolled drawbridge. That’s a seismic error. The logic of the H200 deal may sound clever: let’s tax China’s AI growth to fund American R&D, extracting rent from our key strategic rival, while locking them into the Nvidia ecosystem.

But when you look at the political mandate and the engineering realities in China, that logic collapses. First, because lock-in is a myth. Beijing issued a document, Document 79, back in 2022, that legally mandated state-owned enterprises to purge US silicon by 2027. We were debating in the Biden years, “Where should we land on the continuum between de-risking and decoupling?” Beijing was already setting the date for a divorce as it relates to US chips. China doesn’t want H200s to get in bed with Nvidia. They want to bridge the gap until Huawei‘s comparable version comes online. Let’s say that’s late 2027. We’re not capturing a customer. We’re bridging a competitor.

Peter Harrell: I’m a lawyer — I would defer to Daleep on the economic numbers. But part of the story is that Trump, starting over the summer, began to back off some of his initially maximalist tariffs. We had 145% tariffs in China for a couple of weeks, and then those came back down and steadily ratcheted lower. They’re maybe 45%.

There’ve also been lots of quiet exclusions of products. Trump has talked about tariffs on semiconductors and cell phones. But if you look at what he has done, semiconductors, cell phones, laptops, and consumer electronics are, by and large, fully exempt from the tariffs. Some of the recent data suggests that only about half of the products the US imports have been subject to any new tariffs under Trump’s second term.

There’s a lot of headline noise. It is still the largest increase in tariffs probably since the ‘30s — I don’t want to minimize the impact. But it is not nearly as dramatic as it was looking like it could shape up to be at the beginning of the year, in terms of the value of the product subject to the tariffs. When I look at some of the Goldman estimates, we are seeing some pretty quick tariff pass-through on low-margin products, highly susceptible to the tariffs — furniture and apparel.

Peter Harrell: The margins are tiny and the tariffs are quite high. Trump has 25% tariffs on upholstered furniture, vanities, and cabinets. You are seeing the pass-through there. But in some other industries, you are seeing companies dragging out the pass-through over time. They didn’t want to get in trouble with the White House by suddenly hiking prices. In some of the higher-margin products, they are willing to eat into margins for maybe a couple of months. But we’re going to see the price increase on those products. 60%-70% will get passed through — but over the course of a year from last summer, rather than two months.

Daleep Singh: Back in January 2025, the effective US tariff rate — taking into account the fact that consumers will substitute lower- or non-tariff goods for higher-tariff goods — was about 2.5%. That had been pretty steady for many years. Just after April 2nd, that rate spiked to 28%. That was the shock-and-awe phase. Then as Peter mentioned, as of late 2025, that effective rate declined towards 18% or so. That was the highest effective tariff rate since 1934, just after Smoot-Hawley was passed.

My conclusion, looking at the economic data over the past year, is this has not been a free lunch:

The vast majority of exporters to the US have not absorbed these tariffs into their profit margins.

We have not seen a domestic manufacturing renaissance in the US that substitutes for foreign imports — manufacturing output has been flat, or has contracted, for 10 consecutive months. We’ve** lost about 72,000 jobs** in the manufacturing sector.

If the dollar had strengthened, that could have offset the impact of higher tariffs by making it cheaper to buy foreign goods. In the first half of last year, the dollar depreciated by about 10%, which is, on an inflation-adjusted basis, one of the largest declines in the past 50 years.

US importers by and large absorbed the tariff increase. Because these are price-competitive categories, about 80% of those costs — about $300 billion in tariff revenues — have been passed on to consumers. It hit the bottom 20% harder than the rest of the country, because they spend a larger-than-average share of their consumption on tradable goods, food in particular, but also many other imported items. That translates into a 6-8% decline in their inflation-adjusted after-tax income, or about four times more than what you see for the top 10% — they tend to spend more on services which have not been tariffed. For a struggling family living paycheck to paycheck, that has been part of this cost-of-living crisis.

On inflation, I do think we’ve seen a less acute effect, as Peter suggested, but it’s going to be more protracted. Businesses are smart. They saw the April 2nd announcements coming and accumulated inventories to a historic degree — two to three [quarters’ stock] above the pre-pandemic trend. I don’t think we’ve fully exhausted those inventories. In the first half of this year, and afterwards, we will start to see higher levels of pass-through that will impact our inflation numbers and the cost of living. It’s going to have a long tail.

Arnab Datta: From a broader investment perspective, our domestic industries are struggling. Every quarter, the**Dallas Fed** does a survey of oil executives, and they produce rich insights. There’s been consistent consternation about the tariffs over the last three to four quarters. In a recent survey, about half of executives said that at least a quarter of their oil field equipment was sourced from China. The necessity to find domestic suppliers was running into quality-assurance issues. This was affecting their ability to get projects delivered on time. We haven’t experienced the full impacts these tariffs will have.

As Peter mentioned, the tariffs have changed — there’s these exclusions. The general environment is of uncertainty. That is something that’s very difficult for businesses to react to. As these sustain, you’ll start to see more behaviour change as well.

Daleep Singh: To be fair, I can imagine people reading saying, “Didn’t the Biden folks also support tariffs?”

Daleep Singh: I’m mind-melding with you. Tariffs are a tool that belongs in the toolkit. They are one of the three prongs of a domestic revitalization strategy:

The first and most important one is investment. Make public investments where we want to strengthen and scale up productive capacity in strategic sectors to crowd in the private sector.

Step two: we’re not going to build all the productive capacity we need at home, so let’s work with our allies who are playing by the same rules, invest in each other’s productive capacity, and lower barriers in those strategic sectors.

Three, where necessary to level the playing field, you use targeted tariffs so that our investments pay off. So it was not a tariff-centric strategy in the Biden years — it was an investment-centric strategy.

It’s all a question of balance. I applaud the MP Materials deal. But I don’t want us to create national champions. I would like there to be a portfolio of MP Materials investments. That would have the makings of a more sustainable competitive environment where we can win.

Daleep Singh: I have been surprised by how much leverage a maximalist tariff policy gave us in the short term. When I look at which tools in our toolkit for economic statecraft are most potent, I would not have said tariffs. If you look at the US as a share of global imports, we’re about 15%. But China’s share of global imports is about 10%. The EU share — even if you exclude trade within the EU — is about 14%. That’s not my definition of asymmetric strength. We have a marginal advantage in terms of the US consumer’s power, relative to that of other trading nations. It’s less potent as a tool of statecraft than our dominance in finance and tech.

The fact that we’ve been able to use tariffs against our main trading partners, and we’ve not seen any retaliation, I find surprising. Part of this has to do with the fact that the US has been growing faster than the rest of the world — at least most of the advanced economies. Leaders in the EU accepted an asymmetric deal — we put 15% tariffs on them, and they have no retaliation against us — because their growth remains relatively weaker, and they have a relatively higher dependence on external demand from the US. They had a weak hand. But while we do appear to have significant leverage in the short term, we’re seeing the rest of the world hedging to reduce its vulnerabilities to the US over the longer term. That’s my takeaway from what the EU is doing with**Mercosur**. There are new trading blocks emerging in the Asian supply chain. That’s going to continue.

Peter Harrell: I was quite struck by how readily most of our major trading partners just caved to Trumpian trade demands made by tariffs. The countries that resisted US pressure are all Global South, emerging markets countries.

The European Union — despite a bunch of noise — caved pretty quickly.

Japan, and South Korea, despite a little bit of noise, caved.

Southeast Asia made a very rational calculus. A 20% tariff on something we import from Thailand — there’s not going to be any US onshoring. A lot of these countries concluded, “Fine. The Americans will just pay this tariff for the stuff we’re exporting. It doesn’t affect us much, as long as our tariff rate is the same as our competitor countries’ tariff rate.”

The countries that stood up to Trump have been China, which retaliated hard, Brazil, and India — which have eaten exceptionally high tariff rates and refused, so far to cave, though there is talk about deals.

I would not have necessarily expected that it would be the large emerging market countries that would’ve stood up to this, rather than the close allied countries. Maybe our allies feel dependent on the US for security in the short term, and felt they had to cave.

I have been surprised at how effective China has been, in a short period of time, at finding other export markets. It is striking that China’s overall exports are up substantially last year. As Daleep walked through earlier, major increases — double digits to Europe and 25-30% to a bunch of other countries. I would not have thought that the rest of the world would’ve absorbed that industrial output from China to the extent that they have.

It has been interesting to me to see how little onshoring tariffs at this level have caused. Manufacturing employment is down. Best-case scenario, manufacturing is flat. There’s a lot of talk about US manufacturing — we’re not seeing it in the numbers.

Peter Harrell: Part of it is the uncertainty. No one wants to invest when they don’t know where tariffs are headed. Part of it is the indiscriminate nature of the tariffs, which have hit a number of industrial inputs pretty hard. Steel in particular, and aluminium to a significant degree, are needed to build manufacturing capacity and are in lots of manufactured goods. We now have by far the world’s** highest steel and aluminium prices**. That doesn’t, on a cost-competitive basis, help US manufacturing.

One thing we have seen Trump back off on; the Biden administration’s big bet on industrial policy was, we were going to put a ton of federal government money, through grants and tax credits, into clean energy manufacturing. That was beginning to work. Trump has pulled a ton of that back. What we’re seeing is, if you want manufacturing, it can’t just be tariffs. You probably need to lead with the investment, which we are simply seeing fewer dollars of this year, though we are seeing some of those dollars deployed in interesting ways.

Peter Harrell: We now have a number of deals out there. There are only two countries where we have what I would consider a fully-developed deal text — Malaysia and Cambodia. With the big trading partners — the EU, Japan, Korea, a couple of others — we have what I might call MOUs (Memoranda of Understanding). We have high-level parameters. Importantly, the MOUs have adjusted and frozen the US tariff rate. They have begun to provide some degree of certainty. In many cases, they did bring the tariff rates down from where they were prior to the deal.

A very large share of our trade does come from our top 10-12 trading partners. If you get deals with those countries, you have covered most of our trade. The other imp