Tariff Diplomacy? When Bridge Building turns into Bridge Burning

How to cite this journal: Author, Date of the post, WMO Conflict Insight, Title of the post, ISSN: 2628 6998, https://worldmediation.org/journal/

EDITORIAL NOTE *

This article assesses the trade policy of a serving government and reaches critical conclusions about it. The assessment reflects the author’s own perspective; this journal’s editorial position is neutral on contested questions of national policy. The article was written in spring 2025 and its account of current measures should be read with that date in mind.

ABSTRACT

The modern application of tariffs by the United States, once intended as a regulatory mechanism to protect domestic industries, has increasingly evolved into a coercive diplomatic tool, weaponized to influence international behaviour and policy. While historically used with mixed results, recent tariff escalations have demonstrated a destabilizing effect on both the US and the global economy, as evidenced by declining growth projections from the International Monetary Fund and retaliatory actions by major trade partners. Rather than achieving strategic policy reforms, these tariffs have often triggered cycles of protectionism, eroded trust among allies, and inadvertently incentivized adversarial nations to deepen partnerships, as seen in shifting alignments across Asia, South America, and Europe. The imposition of tariffs, particularly those lacking coherent long-term objectives, has proven to be a blunt instrument, one that disproportionately burdens domestic consumers and weakens the credibility of the United States as a stable trading partner.

KEYWORDS *

Tariffs, economic coercion, trade war, protectionism, retaliation, soft power, Smoot Hawley, sugar quotas, Cobden Chevalier Treaty, supply chains, alliances, leverage

INTRODUCTION

In recent years, the United States has increasingly utilized tariffs as instruments of economic coercion, particularly under the current administration. Tariffs, typically utilized strategically to level the economic playing field on the international stage, have been broadened to unprecedented levels, leading to significant disruptions in both domestic and global trade. The International Monetary Fund reports that these trade policies have elevated US import duties to levels not seen in a century, adversely affecting global supply chains and increasing the likelihood of a US recession. The Fund projects global economic growth of only 2.8 per cent in 2025, as against an average of 3.7 per cent, while the US economy is expected to grow by only 1.8 per cent (Rugaber 2025). This use of tariffs not only strains international trade relations, but also increases costs for US consumers and businesses, as the burden of tariffs is largely borne domestically (Fajgelbaum and Khandelwal 2021).

The repercussions of these scorched-earth tariff policies extend beyond economic metrics, influencing diplomatic relations and geopolitical stability. US trade policies reach every country, and in a globalized world economy everyone is at risk when these policies endanger financial interests. Nations affected most by US tariffs have implemented retaliatory measures, leading to a cycle of protectionism that undermines international cooperation, not only in trade but in areas such as energy and security as well. For instance, China’s retaliatory tariffs on US goods, in response to the tariffs placed on that country, have escalated tensions, affecting not only bilateral trade but also global markets (Fong, Berman and Siripurapu 2025). These tensions extend to other nations in terms of shifting partnerships, as states seek to diversify and reassess their relationship with the United States as its reputation as a reliable partner wavers. Such actions have prompted concerns among economists and policymakers about the long-term implications of using tariffs as a foreign policy tool, suggesting that they may lead to a fragmented global economy marked by slower growth and chronic instability (Krueger 2025).

MAIN CORPUS

A brief history of US tariffs

Historically, tariffs have been employed by nations as mechanisms to protect domestic industries and influence international policy. In the United States, tariffs were a primary source of federal revenue from 1798 to 1913, accounting for between 50 and 90 per cent of government income over that period (Kennedy, Wolf and Downie 2025). The Smoot-Hawley Tariff Act of 1930, which raised US tariffs on over 20,000 imported goods, aimed to protect American farmers and manufacturers during the Great Depression. However, it led to retaliatory tariffs from other countries, resulting in a significant decline in international trade and exacerbating the global downturn (Office of the Historian 2016). The prices of many goods rose, including eggs, which was and still is one of the benchmarks used by economists and, more importantly, by everyday Americans as a measure of the country’s economic health.

An example in which tariffs were largely successful was their use to protect domestic sugar production. In the 1930s, under the Jones-Costigan Act, sugar import policy shifted dramatically to favour domestic producers, setting quotas on imports and, in the 1980s, allowing additional imports but at high tariff rates (Krueger 1988). The United States had once relied on its Caribbean and Central American neighbours for most of its sugar imports, but through these controls it developed a self-sufficient domestic industry, a result which has its own shortcomings and criticisms beyond the scope of this paper.

Internationally, tariffs have also been used to exert political pressure. The Fordney-McCumber Tariff Act of 1922 increased US tariffs to protect domestic industries but inadvertently strained relations with European nations, making it more difficult for them to repay debts accrued during the First World War (Office of the Historian 2016). Similarly, in the 1980s the United States imposed tariffs on a wide variety of Japanese products to address the growing trade deficit between the two countries, though these failed to achieve their goals, as the tariffs never addressed the underlying trade relationship that US businesses and consumers had developed with Japan (Branstetter 2017). These historical instances illustrate how tariffs, while intended to protect national interests, can have unintended diplomatic consequences.

Moreover, the use of tariffs has often been a double-edged sword. While they can provide short-term protection for domestic industries, they may also invite retaliation and reduce the competitiveness of domestic products abroad. The European Union’s response to US steel and aluminium tariffs in 2018, which included tariffs on American products such as motorcycles and whiskey, exemplifies how such measures can escalate into broader trade disputes, affecting diplomatic relations and economic stability. A similar pattern has emerged with the current round of tariffs from the European Union and Canada (European Commission 2025).

Tariffs as tools for fostering cooperation

Despite their contentious nature, tariffs have occasionally been used to foster international cooperation, though it is typically the removal or reduction of tariffs that results in cooperation, the adversarial pressure of tariffs being intended to force dialogue in the first place. The Cobden-Chevalier Treaty of 1860 between the United Kingdom and France is a notable example, in which both nations agreed to reduce tariffs, leading to increased trade and improved diplomatic relations. This treaty set a precedent for future trade agreements and demonstrated how mutual tariff reductions could serve as a foundation for cooperation (Timini 2022).

In the modern era, preferential trade agreements among developing countries have used tariff reductions to strengthen economic ties. The Global System of Trade Preferences among Developing Countries, established in 1989, aims to promote trade in the Global South by offering tariff concessions among member states. This initiative has facilitated increased trade and economic collaboration among participating countries, highlighting how the easing of tariffs can enhance diplomatic relations and economic security (UN Trade and Development 2022). In another example, the European Union’s tariffs on electric vehicles made in China, intended to protect domestic manufacturers from being undersold, have recently led to negotiations between the two blocs aimed at settling on prices that allow European vehicles to compete (Blenkinsop, Martinez and Waldersee 2025).

In terms of the recent tariffs imposed by the United States, there are examples of successful leverage in bilateral negotiations addressing broader diplomatic concerns. For instance, recent meetings between US and Indonesian officials have included discussions on increased military cooperation, particularly regarding tensions in the South China Sea. This followed only weeks after China and Indonesia held their own high-profile talks. These arrangements not only affect trade but also strengthen defence and security cooperation, though it remains to be seen whether this strategy can lead to lasting guarantees. Similar examples can be seen in the Philippines and Japan, where military cooperation appears to be at the forefront of some discussions. In cases such as these, tariffs are leveraged to open doors to other concerns which may have been more challenging to engage with otherwise (Shakil 2025). These examples underscore the potential of tariffs, when used judiciously, to serve as instruments for fostering international cooperation and addressing multifaceted diplomatic objectives, though they appear to be the exception rather than the rule.

Tariffs are a gamble

The use of tariffs as a means to compel cooperation has often led to adverse outcomes. The trade war between the United States and China initiated in 2018 serves as a prominent example. The imposition of tariffs on hundreds of billions of dollars’ worth of goods by both nations led to increased costs for consumers and businesses, disrupted global supply chains, and failed to achieve the intended policy reforms, such as addressing intellectual property theft. The National Bureau of Economic Research found that over 90 per cent of the cost of US-imposed tariffs on China during the trade war of 2018 to 2019 was passed on to American firms and consumers, with no significant change in Chinese policy behaviour (Fajgelbaum and Khandelwal 2021).

Similarly, the US tariffs on Canadian and Mexican goods in 2025, intended to renegotiate trade terms under the United States Mexico Canada Agreement, resulted in retaliatory measures and strained diplomatic relations. These actions not only affected economic exchange but also undermined trust among US partners, highlighting the limitations of using tariffs as leverage in diplomatic negotiation as those partners pivot to others to fill the economic gaps (Putzier and Lahart 2025). It is no secret that tariffs largely fail when it comes to imposing policy change, a lesson available from the McKinley tariff of 1890, which imposed levies of roughly 50 per cent on most imports and was framed to pressure other countries into economic difficulty, with many economists of the time predicting that Canada would join the United States as a result (Brown 2025).

The weakening of US soft power has also been widely observed. Arguably one of the greatest assets of the United States is the extensive network of partnerships cultivated over the last century, and these are souring as protectionist policies push nations to diversify and divest. China has taken the opportunity to strengthen its economic relationships in Southeast Asia, where states are themselves leveraging the instability to gain concessions from China, potentially fostering stronger partnerships amid the economic burdens imposed by the United States that threaten to destabilise a regional economy heavily reliant on global trade (Ewe, Marsh and Ajengrastri 2025). As noted above, China has also pivoted towards South Korea and Indonesia in terms of military cooperation, and has been joined by Japan in applying pressure in response to the recent tariffs (Tang 2025). Additionally, Brazil engaged in joint military exercises with China for the first time during this period, indicating that trade policies pose risks to military alignments as well. Furthermore, tariffs reverberate not only at the national level but also in communities, as people in the European Union and Canada have widely boycotted US products in response, and this contributed in part to political outcomes such as the result of the Canadian election of 2025, though of course other policy factors were also at play (Harb et al. 2025).

It is important to remember that regardless of the success or failure of any one instance of bilateral relations in regard to tariffs, there is an underlying pattern in response to the instability imposed by these policies. Trade tensions initiated through tariffs are far less likely to result in successful diplomatic outcomes; rather, nations are prompted to seek economic alliances elsewhere (Tran 2025). Goodwill fostered between long-standing partners can be soured quickly, meaning that even if a beneficial resolution regarding tariffs or military cooperation comes to fruition, future partnerships might be avoided in favour of more reliable partners who do not pose such a risk. It is these unseen partnerships that never come to fruition that are most at risk. Furthermore, the broad application of tariffs without clear strategic objectives can and has led to global economic instability that hurts everyone, including the United States.

Limitations of tariffs as diplomatic instruments

While tariffs are often framed as strategic tools for leveraging diplomatic negotiations, their inherent limitations frequently undermine their utility. Unlike multilateral agreements or targeted sanctions, tariffs are typically blunt instruments that affect entire sectors indiscriminately, impacting not just the targeted nation but also domestic producers, consumers, and international supply chains. Peer-reviewed economic studies have shown that in most instances the costs of tariffs are disproportionately absorbed by the imposing nation’s own economy. Moreover, tariffs often invite retaliatory measures, entrenching adversarial dynamics and escalating trade disputes into broader diplomatic rifts. While tariffs may open diplomatic doors in some instances, evidence shows that far more doors tend to close.

Additionally, unpredictable implementation of tariff policy can erode long-term trust and stability in diplomatic relations. Because tariffs can be imposed unilaterally with little warning, they introduce volatility that deters international investment and cooperation. Countries on the receiving end often perceive tariffs not as invitations to negotiate but as coercive acts of economic warfare, which hardens their negotiating stance rather than incentivizing compromise. Furthermore, as geopolitical alignments become more multipolar, unilateral tariffs may push targeted states into closer partnerships with rival blocs, reducing the influence of the imposing state and undermining its long-term strategic goals. In sum, while tariffs may offer short-term leverage, their long-term diplomatic costs often outweigh their utility.

SUMMARY *

The article’s argument turns on a distinction that the historical material makes visible. Tariffs used as protection, with a defined domestic objective and a stable rule, have sometimes achieved what they were designed to achieve; the sugar programme is the author’s own example. Tariffs used as leverage, to compel another state to change a policy, have a markedly poorer record, and the reason is structural rather than incidental: the cost falls on the importing economy, the target retaliates in the sectors where the imposing state is politically most exposed, and the concession demanded is usually one the target’s own domestic politics will not permit. The author’s most valuable observation concerns what cannot be measured, namely the partnerships that are never formed because a state has become an unreliable counterparty, and the point that a resumption of trade does not restore the assumption of reliability on which long-term arrangements depend.

CONCLUSION

The evidence assembled here suggests that tariffs function poorly as instruments of diplomacy and reasonably well, in specific circumstances, as instruments of industrial policy. Where they have contributed to cooperation, it has generally been through their reduction rather than their imposition. Where they have been applied broadly and without clear strategic objectives, they have raised costs at home, invited retaliation abroad, and accelerated the search among partners and adversaries alike for arrangements that do not depend on the imposing state.

POTENTIAL SOLUTION *

The article’s central finding is well supported and the mechanism behind it deserves to be named, because it is the same mechanism that this journal encounters in every coercive process.

Economic coercion works, when it works at all, where the demand is specific, the relief is credible, and the target can comply without unacceptable domestic cost. Broad tariffs fail all three tests. The demand is frequently unstated or shifting, so the target does not know what compliance would consist of. The relief is not credible, because a measure imposed by executive action can be reimposed the same way, which means a concession purchases nothing durable. And the concession demanded is often precisely what the target’s own politics forbid, since retaliation is selected to hurt the imposing state’s most politically sensitive sectors and the target’s leadership acquires a stake in visible resistance. Sanctions research has established each of these points, and the tariff literature is converging on the same conclusions.

That analysis identifies what would make such measures more likely to succeed, and the conditions are demanding. A defined and achievable demand, stated publicly. A path to relief that survives a change of administration, which in practice means legislation or a treaty. Targeting narrow enough that the pain falls on those who can influence the decision rather than on the general population. And a face-saving formula, since no government concedes to an ultimatum in terms that describe it as conceding. Each of these is a mediation design question rather than an economic one, which is why this material belongs in a journal of this kind.

Two additions would strengthen the article. The rules-based alternative deserves mention, since the dispute settlement system of the World Trade Organization exists precisely to handle the grievances that tariffs are now used to press, and its appellate body has been inoperative since 2019 because appointments were blocked. States that would once have litigated now retaliate, and the interim arrangement adopted by a subset of members is a partial substitute. The decline of that forum is part of the explanation for the pattern the author describes. And the article’s treatment of the sugar programme as a success invites the qualification the author gestures at: it protected an industry at a cost to consumers estimated in billions annually and displaced Caribbean producers whose economies had depended on that trade, which is a reminder that protection has victims who are not represented in the domestic debate.

Finally, the article’s most original point concerns what it calls the unseen partnerships, and it is worth stating as a general proposition about reputational damage. Trust is asymmetric: it is built slowly through repeated performance and lost quickly through a single reversal, and it does not return simply because the reversal is undone. States that have been surprised once will price that possibility into every subsequent arrangement, through hedging, diversification and shorter commitments. This is the standard finding on reputation in negotiation, and it applies to states as it does to parties in any other dispute. The cost is invisible in trade statistics and it is the most consequential thing the author identifies.

* Added by the WMO Editorial Team

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