The Real Logic Behind Trump’s Trade War: Power Beats Economics

Last April, President Donald Trump announced “Liberation Day,” imposing punishing tariffs on dozens of countries. Ever since, economists across the world have been scratching their heads trying to understand why. “Whatever model they use to rationalize this, they can’t,” says Peter Dabaere, the Tipton R. Snavely Professor of Business Administration Chair at the University of Virginia’s Darden School of Business. “It certainly doesn’t seem to be built on any economic logic.”

In a new case, “Is Donald Trump Winning the Trade War?” Debaere takes a step back, cutting through the tit-for-tat of competing tariffs to take in the big picture and understand the method behind Trump’s approach. He finds clarity in the work of 20th century economist Albert Hirschman, who fled Nazi Germany to settle in the U.S., where he wrote several influential books on international trade.

Following Hirschman, Debaere argues that Trump’s tariffs are better understood not through a lens of economic policy, but of political power.

“He basically says tariff policies don’t necessarily have to make a country better off economically — the aim is to become more stronger and more powerful politically,” Debaere explains. He and his wife, UVA History and German professor Manuela Achilles, further explore the idea in an article for the journal Global Europe,  “Trade Policy as an Assertion of National Power: Reading Hirschman to Understand the Donald Trump Administration.”  They argue that Trump has upended the international order to gain leverage over other countries and impose his will upon them. The question is whether that order will survive.

Holding Back the Big Dog

Since World War II, Debaere says, international bias has been towards free trade.

“If countries specialize and produce according to their comparative advantage, then economic welfare will be highest for everyone,” he says. The system was formalized in the General Agreement on Tariffs and Trade (GATT) in 1947 and expanded by the World Trade Organization (WTO) in 1995. It hinges on the idea of “most favored nations,” that is, if a country offers favorable terms such as low tariffs to one trade partner, it must offer them to all other eligible countries.

The concept has served the United States well for 80 years, allowing for expansion of U.S. companies around the world. It’s now the world’s greatest economy, with all other countries in the world dependent in one way or other on U.S. markets.

“They key that made it work was the restraint that the U.S. imposed upon itself,” Debaere says. “It basically said, ‘I am the big dog here, I have the most power, but I will not exert that power.’” After all, no one likes a bully, who throws its weight around to get its way. By voluntarily agreeing to a fair set of rules for everyone, the U.S. assured cooperation by countries around the world.

So if the situation has been so rosy, why challenge it?

“Well to be fair, it’s not all rosy, our manufacturing sector has taken quite a hit,” says Debaere, adding the U.S. has justifiable complaints about China not following the rules.

Even if trade were solely responsible for manufacturing’s decline, which it is not, it’s unrealistic to think tariffs would bring it back. The U.S. has moved to a service economy, with just 10 percent now employed in manufacturing.

And with the on-again, off-again uncertainty about Trump’s tariffs, multinationals are apt to hold off making any costly moves to build new factories anyway. As for China, “the smart strategy in a multilateral world is to get a coalition together” to exert economic pressure, Debaere says, “not destroy the post–World War II global system.”

Zero-Sum Game

From the perspective of Hirschman, however, Trump’s tariff war makes sense. Writing in 1945, he showed how Nazi Germany locked smaller countries into asymmetrical trade relationships that stifled local production and increased Germany’s political influence. 

“Trade isn’t a zero-sum game; if we both specialize and produce what we’re best at, then the pie gets bigger,” Debaere says. “But with power, that’s not the case — only one of us can be on top and it’s at the expense of the other.”

This strategy wasn’t limited to the Nazis; Hirschman shows how colonial-era Britain pursued similar trading dominance. While Debaere and Achilles emphasize the U.S. is neither Nazi Germany nor the British Empire, they argue that Trump’s America is now running the same playbook, pursuing bilateral deals with countries in which the U.S. gets the upper hand, rather than international free trade that lifts all boats. As Debaere puts it, “[Trump] says, ‘I’ll slap a very high tariff on you, and that will hurt you more than it will hurt me.’”

Ironically, the only reason the U.S. is able to pursue the strategy now is because it held off imposing itself for so long, creating a system of dependence. “It’s an incredible situation Donald Trump has found himself in, because the U.S. has built the GATT/WTO system, and to a large extent shown restraint, all countries have opened their doors,” Debaere says.

In answer to the question he poses in the case, “Is Trump winning the trade war?” evidence points to “yes,” as countries have failed to present a united front against him. “I’m actually quite impressed with Donald Trump and his ability to impose bilateral deals  with countries in a multilateral world,” says Debaere, speculating that either the pain hasn’t been high enough or the effort to coordinate has been too difficult.

Perhaps whether Trump is winning is the wrong question to ask, however. The better question, says Debaere, is whether the U.S. is winning the trade war. The answer to that is harder to determine. Already, it seems the tariff policy has dealt a blow to Europe, pitting countries such as the UK, Hungary and Poland against the bulk of the European Union and undermining our historic alliances.

“Instead of looking to Europe as a partner, we’re retreating from alliances and collaboration,” says Debaere. “It’s hard for me to believe that we engaged with Europe in 1945 only to rip them off in 2025.” Meanwhile, historical adversaries such as Russia and China only seem to be gaining power.

The bigger implication of Trump’s tariff policies, however, may be more long term. Even if countries have chosen to play ball for the moment, they can’t ignore the fact that the U.S. has proven itself an untrustworthy trading partner. Once it has upended the world order once, what’s to stop it from doing it again?

“Yes, the U.S. is large and can slam its fist on the table and frighten people, but having seen this once, countries would be stupid to play this game again,” Debaere says. That might lead to increased isolationism as countries seek to protect themselves from being exploited in the future, potentially injuring U.S. prospects both economically and politically. “There seem to be few gains to a worldview where we basically do not engage with each other,” Debaere says. “It’s hard for me to see a winner in that game.”

Professor Peter Debaere is author of the business school case “Is Donald Trump Winning the Trade War?”, published by Darden Business Publishing (October 2025).