What is Trump seeking with trade deals?

US President Donald Trump and his administration are racing to finalize trade deals ahead of a self-imposed deadline, at which point tariffs are expected to rise on dozens of countries around the world.

News of tariffs being applied and then lifted has become so frequent during Trump’s second term that it’s sometimes hard to remember why the president started the process in the first place.

The Republican gave several different reasons why he believes tariffs are a crucial part of his political agenda, but they can be categorized into four main goals:

• Restore US industrial capacity;
• Increase US revenue;
• Equalize the trade balance;
• Pressure foreign countries to establish policies that benefit the United States.

Trump has often portrayed tariffs as a panacea — a universal economic tool that can simultaneously restore working-class jobs, pay down the U.S. deficit, make foreign nations concede on important disputes and reduce Americans’ tax burdens.

In his first months in office, Trump has used tariffs to advance each of these goals.

Some companies have announced they will invest in factories in the United States, citing the high tariffs. Tens of billions of dollars in tariff revenue are flowing into the United States each month. The U.S. trade deficit was cut in half in April — a dramatic decrease. And Trump has brought several countries to the negotiating table after threatening high tariffs — all without dramatically increasing inflation.

However, the early indicators of success may be more a sign of an initial shock to the system as companies, consumers and businesses make rapid adjustments to the new reality of higher U.S. tariffs.

Economists and business leaders continue to project that the tariffs are unlikely to lead to a major boom in American factories. They argue that revenue from the tariffs will remain insignificant compared with the massive budget deficit that was only exacerbated when Trump signed his expensive domestic policy agenda and tax cuts .

Tariffs and trade agreements are unlikely to dramatically increase demand for American products in foreign countries. And some trading partners have already shown that there is a limit to what tariff threats can achieve.

"I'm telling you, just watch. We're going to have jobs. We're going to have factories running. It's going to be great," Trump said on Air Force One in March.

To accomplish this, Trump has frequently advocated lower taxes at home and higher taxes on goods made abroad.

Trump, during his joint address to Congress in March, made an oft-repeated threat since then: "If you don't make your product in America, [...] under the Trump administration, you will pay a tariff, and in some cases a very large one."

Trump has scored some early public relations victories after imposing tariffs. Apple Inc. announced in February that it would invest $500 billion in manufacturing in the United States . GE Appliances Inc. said last month that it would also spend half a billion dollars to move a factory from China to make washing machines in the United States. And General Motors Corp. said in June that it would spend $4 billion to increase its production in the United States. Many other companies have made similar announcements.

However, many of these decisions were made before or regardless of Trump’s tariffs, companies say. That’s because factories can take years to plan, build and begin operations.

Another big complication: It’s hard to find skilled manufacturing workers in the United States. That’s why the Labor Department reported 414,000 manufacturing job openings in May: There simply aren’t enough people in the United States who are willing or skilled enough to do the work. And American labor can be much more expensive than in other countries. That’s why some industry experts estimate that the cost of an iPhone would rise to more than $3,000 if it were made in the United States.

Meanwhile, manufacturing jobs are not on the rise — quite the opposite. After Trump declared victory with gains of 9,000 manufacturing jobs in his first two full months in office, they have since fallen by 7,000 jobs in each of the past two months, and the number of manufacturing jobs is now at its lowest since Trump took office.

Tariffs could ultimately help restore some manufacturing to America. But as Trump routinely reminds companies: If you make products in America, you don’t pay tariffs. That means if companies do what Trump asks, then America can’t collect tariff revenue from them.

Trump has made astronomical estimates about how much money the tariffs could raise, arguing that the tariffs could bring in trillions of dollars in annual revenue.

"We're going to make a lot of money and we're going to cut taxes for the people of this country," Trump said before boarding Air Force One for his return from Pope Francis' funeral in April.

"It's going to take a while before we do that, but we're going to cut taxes, and it's possible we're going to cut taxes entirely, because I think the tariffs will be enough to cut all income taxes."

To accomplish this, tariffs would need to be extremely high — significantly higher than the already historic levels set by the Trump administration today, or even the 60% to 70% that Trump has threatened to impose on some countries starting in August.

The federal government collects about $3 trillion a year in income taxes. The United States also imports about $3 trillion in goods annually. That means tariffs would need to be at least 100% on all imported goods to replace income taxes, said Torsten Slok, chief economist at Apollo Global Management.

It’s not quite that simple: Demand would fall as prices rose. So Slok estimates that tariffs would need to be set at 200 percent to replace all federal income tax revenue.

Tariffs aren’t generating anywhere near that amount these days: The Treasury Department reported that Trump has collected less than $100 billion in tariff revenue since taking office, generating about $20 billion a month in recent months.

But there’s a catch: Some of the most punitive tariffs weren’t designed to stay in place for that long. The Trump administration, for example, imposed 25 percent tariffs on Canada and Mexico and 20 percent on China to encourage them to reduce the flow of fentanyl into the United States. If that’s successful, Trump has said the tariffs will be “removed.” And his trade deals are supposed to reduce tariffs on some countries’ goods and services — not increase them.

Trump often talks about tariffs in terms of “fairness,” saying other countries are “cheating” Americans with high trade barriers. He has repeatedly said he views America as a highly desirable department store and sees tariffs as a “cost of doing business in America.”

As a result, Trump introduced “reciprocal” tariffs on April 2, which were calculated by effectively measuring America’s trade deficit in goods with foreign countries and cutting that in half. Thus, countries from which America imported a large number of goods but exported few were punished with the highest reciprocal tariffs.

When America is hit with higher tariffs and has a trade imbalance with other countries, Trump has often incorrectly labeled it a “subsidy” or a “loss.” But economists broadly agree that trade deficits are not losses or subsidies. In fact, they can be a reflection of a strong economy.

However, Trump’s tariffs initially had a big effect on the trade deficit in goods, reducing it from about $130 billion in April to about $60 billion in May, according to the U.S. Commerce Department. U.S. imports plummeted, largely because of the 145% tariffs the Trump administration imposed on Canada, effectively blocking Chinese goods from entering the United States. The trade deficit widened again in May after tariffs on Chinese goods were dropped and as foreign countries reduced their purchases of American exports.

However, over time, tariffs are unlikely to significantly reduce the trade deficit America has with other countries, economists argue. Many countries manufacture goods more cheaply in other countries, and many products simply cannot be grown or produced in America.

If the trade deficit continued to fall, it could be a sign that America's purchasing power was declining.

Trump has repeatedly threatened tariffs as a sort of sword of Damocles over the heads of countries, companies or industries. The targets of Trump’s tariff threats have sometimes immediately come to the negotiating table.

The latest example came last week when Canada backed away from its digital services tax that was about to go into effect. Trump had criticized the tax on online companies, including American corporations that do business in Canada. He threatened to end trade talks with his northern neighbor. Trump also said he would impose a new tariff on Canada, which he eventually backed down from, saying he would drop the tax to help bring the countries back to the table.

But it doesn’t always work. Trump’s tariffs haven’t stopped the flow of fentanyl into the United States, even though that was always an unreasonably ambitious goal.

The threat of tariffs also failed to persuade Apple to bring iPhone manufacturing to the United States, Hollywood to make more movies in Los Angeles, or American automakers to close their factories in Canada and Mexico.

If and when the tariff targets finally give in to Trump’s demands, those tariffs will also have to be eliminated, which undermines the administration’s revenue-raising goals.

Trump has scored several early victories with his tariffs — both politically and economically. But in the long run, the tariffs are unlikely to achieve all of their ambitious goals simultaneously. That’s because Trump’s goals are often contradictory.

For example, if tariffs are a pressure campaign, they need to be eliminated as soon as countries give in—meaning there will be no tariffs to restore trade balance. If tariffs are designed to promote American manufacturing, they cannot also generate revenue to offset deficits. If Americans switch to U.S.-made goods, then who will pay the tariff on foreign goods?

When used effectively, tariffs can help boost domestic production by making foreign goods more expensive. Because America is a large, diversified economy that is not as dependent on trade as its neighbors, the United States could use tariffs to inflict serious damage on other countries’ economies without plunging into a recession. The revenue raised by tariffs could help offset some of its deficits.