U.S. trade policy: Key considerations for policymakers right now
Johns Hopkins experts explore the main risks of current U.S. trade policy and outline solutions for supporting domestic manufacturing within a complex global supply chain.
Since April 2, which President Donald Trump dubbed “Liberation Day,” the retaliatory tariffs the president imposed on dozens of countries that have trade surpluses with the U.S. have resulted in a global back and forth with economic implications.
Other countries responded with retaliatory tariffs on U.S. exports, the president announced exemptions and rollbacks of his initial tariffs, and the U.S. and China agreed to lower most tariffs for 90 days.
As policymakers consider the U.S.’s role in global trade today, Johns Hopkins experts see a few long-term risks of maintaining our current tariff and trade policy and believe there are other effective ways to promote more American manufacturing and address the trade deficit.
Table of Contents
- Key risks of current trade policy
- Tariff alternatives that can strengthen the U.S. economy and supply chain
Key risks of current trade policy
After observing the administration’s global trade strategy, experts outlined a few major downstream issues if it stays on its current trajectory.
Frequent changes in trade policy erode confidence in the U.S. and impact economic growth
Constantly reevaluating tariff rates creates a level of uncertainty for other countries who may start to see the U.S. as an unreliable trading and geopolitical partner. This uncertainty is shown to slow economic growth, according to Olivier Jeanne, economics professor at Johns Hopkins University’s Krieger School of Arts & Sciences.
“It could be that the trade uncertainty is going to lead to a fall in demand, [which is] going to lead to a recession—a recession not only in the U.S. but in the rest of the world,” Jeanne said.
Alessandro Rebucci, economics professor at the Johns Hopkins Carey Business School, cautioned against letting uncertainty spiral into instability, which could shock supply chains and, if tariff rates remain high for several months, cause COVID-19 levels of inflation.
U.S. dollar dominance may begin to wane
According to a Centre for Economic Policy Research report co-authored by Rebucci, when Trump announced his tariff plan on April 2, the value of the U.S. dollar went down, in contrast to standard economic theory that predicts it should go up.
Bloomberg US Dollar Index on ‘Liberation Day’
Emerging-market currencies also went down in value, while other advanced economies impacted by the tariffs, such as Switzerland and Japan, saw their currency value go up. This suggests that tariffs imposed on these types of economies, which are more financially integrated with the U.S., may have more complex ripple effects on the financial systems of countries than we’ve previously acknowledged.
“The shock has been a dent in dollar dominance around the world,” Rebucci said.
If confidence in the U.S. market starts to falter globally and trade partners begin to see business with the country as riskier, trade could become even more expensive.
“We could end up getting stuck in an economy that is less efficient and less reliable than before,” said Tinglong Dai, professor of business at Johns Hopkins.
Other policies can further weaken U.S. as a trade leader
Hopkins experts noted that there is one major U.S. export in the mix that’s largely overlooked: higher education. Policies that limit the country’s ability to attract and retain the world’s brightest minds can not only affect the economy, but also national competitiveness.
In the U.S., more than half of international students across academic levels pursued degrees in STEM fields during the 2023-2024 academic year, according to the Open Doors 2024 Report on International Educational Exchange.
Intent-to-stay rates help predict how much those students may contribute to the U.S. economy down the line. Across all countries of citizenship and across science, engineering, and health degree fields, the five-year stay rate was 71% in 2021, and the 10-year stay rate was 65%, according to a 2024 National Science Board report.
“International student tuition pumps up our trade balance, fuels economic growth, drives scientific breakthroughs, and keeps America leading the global innovation race,” Dai said. “The impacts are global, national, and also local.”
During the same academic year, 1.1 million international students at U.S. colleges and universities contributed a record-breaking $43.8 billion to the U.S. economy and supported more than 378,000 jobs, according to a recent report from the NAFSA: Association of International Educators.
Putting this export at risk is at odds with what Rebucci called the “seed of success of the nation” and could put the U.S. at a competitive disadvantage as international students consider taking their talent to other countries instead.
“With these actions, we are strengthening every other competitor outside of the United States in the technology, education, [and] research space,” he said.
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1.1M
The number of international students at U.S. colleges and universities during the 2023-2024 academic year
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$44B
The record-breaking contributions international students made to the U.S. economy during the same academic year
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378K
The number of jobs international students supported in the U.S. during the 2023-2024 academic year
Tariff alternatives that can strengthen the U.S. economy and supply chain
There are opportunities beyond tariffs that experts see as realistic alternatives to boost economic growth in the U.S. while easing geopolitical tensions by leveraging longstanding trade partnerships.
Address domestic barriers to manufacturing growth to avoid further offshoring
While there’s a lot of attention on international influences that affect U.S. manufacturing growth, Dai said the U.S. must also address barriers at home, such as time-consuming permitting processes and the need for infrastructure investments.
He also emphasized the need to retain domestic manufacturing capacity, especially in sectors critical to public health and national security.
“The real issue here is not so much about moving manufacturing back to the U.S.,” he said. “It’s about holding onto the factories we’ve got and reducing the push to send them overseas.”
Tariffs may be one lever to pull, he said, but they must be part of a broad range of solutions, not the only one.
Additionally, the uncertainty of ever-changing tariffs dissuades companies from overhauling their global supply chains at all, Jeanne added. Even if they did, it wouldn’t be as simple as reshoring a manufacturing facility.
“It’s actually not compatible with profit-maximizing incentives, and it’s very difficult to do,” Jeanne said. “Moving just one piece, one link, in the global supply chain doesn’t make sense if the rest of the supply chain is going to be hit by tariffs when you import inputs from outside the U.S.”
“The real issue here is not so much about moving manufacturing back to the U.S. It’s about holding onto the factories we’ve got and reducing the push to send them overseas.”
-Tinglong Dai, professor of business at Johns Hopkins
Strengthen trade partnerships with U.S. allies to secure supply chains
There’s no way for a country to be entirely self-sufficient, Dai said, especially within the complex global supply chains that exist today. Rather, it’s more beneficial to work with trade allies and neighboring countries in addition to reshoring to truly strengthen supply chain resilience. Plus, more global trade actually supports more U.S. manufacturing.
“There’s no way for the U.S. to really bring back manufacturing to the USA without being an export powerhouse,” Dai said, noting that serving the U.S. market alone would produce too much domestic competition and unpredictable demand. Punitive trade policies that result in retaliatory tariffs on U.S. exports only make it more challenging to achieve this goal.
Consider financial sanctions instead of tariffs
As a geopolitical tool, tariffs are less effective than financial sanctions, Jeanne said. Tariffs put the U.S. more at risk of immediately harming itself as it targets other countries by reducing domestic demand and generating inflation, he said.
By contrast, financial sanctions block targeted countries from using the U.S. dollar, which is the global currency used for international payments. This is costly for sanctioned countries but not the U.S. in the short term, Jeanne said. However, he did note that this approach could incentivize foreign countries to avoid using the currency, potentially reducing the role of the dollar in the long term.
Address inspection inconsistency abroad in addition to tariffs
When comparing the price of foreign-made and domestically made goods, the discrepancy in cost can often be traced back to regulation intensity, Dai said, citing medical devices as an example.
In contrast to frequent and typically unannounced FDA inspections in the U.S., foreign manufacturers are inspected far less often and usually with advance notice. This difference in inspection rigor and unpredictability translates to a real cost advantage for overseas plants, as they don’t have to invest consistently in compliance systems, quality control, and documentation like U.S. manufacturers.
As the Trump administration seeks to use tariffs to counteract low-priced international imports that it says undermine American industry, Dai argued that the U.S. should insist on inspecting foreign manufacturers with the same level of scrutiny and frequency as domestic manufacturers. In doing so, many foreign facilities would need to upgrade their quality systems to match U.S. standards, shrinking their cost advantage and, in turn, reducing the economic pressure driving U.S. firms to offshore production.
“If we do that,” Dai said, “that will help move the needle a bit more, in addition to tariffs alone.”
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