The author is an assistant professor at SZABIST University in Islamabad, Pakistan.

ISTANBUL

If you're an American, the president will tell you tariffs are the road to riches. If you're anywhere else -- friend or foe -- his posturing reflects a different reality: they are his weapon of choice. Trade with Iran? Tariffs. Energy deal with Russia? Tariffs. Can’t stop fentanyl before it reaches American soil? Tariffs. Don’t like the idea of an American Greenland? Tariffs.

Which naturally raises a question: if tariffs were truly a magic bullet for prosperity, why hasn't America had a closed economy for decades -- not merely as a reaction to White House grudges, but as a cornerstone of long-term economic strategy?

From factories to services

The reality is that through structural economic shifts spanning decades, America substituted mundane factory jobs with employment in high-end services and technology, letting low-productivity jobs slide to lower-income countries where labor costs were commensurate with the value added by each worker -- wages being about a fifth of those in the US in China, and less than a twentieth in India [1].

It was seen as a win for American companies, which could conceptualize and design products at home and have them produced abroad to keep costs down and prices competitive. Now, the cost associated with a reallocation of labor to recreate the America of the 1950s -- when manufacturing contributed 21-25% to the GDP, compared to today’s 10% [2] -- would be staggering.

Rather than chasing a nostalgic mirage -- which would likely destroy more jobs than it creates -- manufacturing’s decline should be read alongside the rapid expansion of the services sector, which now represents about 80% of the GDP [3] and employs roughly 80% of workers [4] in America. In addition, America still retains the top spot in services [5] exports to the world.

But what about America’s swelling trade deficit, which, despite a surplus of $30.1B in services, shows a deficit of -$86.9B in trade in goods [6] (January 30, 2026)? This negative balance -- reflecting more imports than exports -- may look problematic on the surface, but it reflects structural realities in how America relates to the world economy.

The logic of the trade deficit

First, Americans -- who own about 34% of global wealth [7] -- are wealthy compared to the rest of the world and are more likely to be consumers than low-cost producers. Strong American growth over the last few decades [8] has meant higher incomes, which have translated into a higher demand for imports, entrenching the deficit. Second, the dollar's status as the reserve currency of choice means there is robust demand for it, making dollar-denominated American exports expensive for foreign buyers while making imports cheap. Third, despite being a leader in high-tech innovation, global production networks mean America must import critical raw materials and intermediate goods to finish them into final, high-tech products.

It may be that US President Donald Trump actually appreciates the structural reasons behind the trade deficit and is merely using the "tariff-led prosperity" narrative as domestic cover to seize what he can -- minerals, energy, territory, or influence. Even so, the structure of the world economy cannot be undone in a four-year presidential term -- except to the detriment of America itself.

What has transpired as a result of his threats is a repositioning of many of America’s most important trade partners [9]. Canada has inched closer to China, entering a ‘strategic partnership’. The European Union and India have entered what has been termed "the mother of all deals." Regional Comprehensive Economic Partnership (RCEP), a bloc whose formation was catalysed by Trump's withdrawal from the Trans-Pacific Partnership (TPP) in his first term, has been seen as deepening recently. Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), both have applications piling up, as anxious countries look to hedge against a mercurial America.

The shift is so pronounced that British economists are now proposing a 'Ministry of Economic Warfare' [10] to coordinate strategy against major powers -- treating Washington as a potential economic adversary. Tariffs help no one. They have nudged supply chains away from America, dented the country's reputation as a reliable partner, triggered an affordability crisis [11], and created virtually no jobs; indeed, 2025 has seen the slowest job creation [12] since the pandemic.

But what’s worse is the precedent it sets for a global order that is more fragile than it has been since WWII -- whether through the horrors in Gaza, the offensive in Ukraine, or the shadow over Taiwan. When economic integration could have built bridges, Trump chose to burn the few that remained -- to what end?

[1] https://www.edwardconard.com/macro-roundup/torsten-slok-notes-that-in-2023-average-monthly-manufacturing-wages-in-china-were-20-of-us-levels-and-in-india-only-3-gdp-per-capita-in-the-us-was-76000-vs-13000-in-china-and-2000-in-india/?view=detail

[2] https://prosperousamerica.org/u-s-manufacturings-shrinking-share-of-gdp-and-how-to-catch-up/

[3] https://data.worldbank.org/indicator/NV.SRV.TOTL.ZS

[4] https://ourworldindata.org/grapher/employment-by-economic-sector

[5] https://ourworldindata.org/grapher/share-of-global-services-exports

[6] https://www.jec.senate.gov/public/index.cfm/republicans/trade-update

[7] https://www.euronews.com/business/2025/08/14/global-personal-wealth-which-countries-have-the-highest-shares-in-europe

[8] https://www.economist.com/special-report/2024/10/14/the-american-economy-has-left-other-rich-countries-in-the-dust

[9] https://cepr.org/voxeu/columns/us-tariffs-may-deepen-integration-elsewhere

[10] https://www.ft.com/content/0302a889-a6ba-4ee7-abda-63ab4fc1177c

[11] https://www.cnbc.com/2025/12/26/how-americans-are-responding-to-the-affordability-crisis.html

[12] https://www.npr.org/2026/01/09/nx-s1-5670392/jobs-employment-labor-market-economy-tariffs

*Opinions expressed in this article are the author's own and do not necessarily reflect the editorial policy of Anadolu.