President Donald Trump announces tariffs on auto imports in the Oval Office, Wednesday, March 26, 2025. White House image.
To Make Liberation Day Work, Stop Fighting Fire with Fire
On Wednesday, President Donald Trump will kick off “Liberation Day,” imposing heavy tariffs on the 15% of countries that supply 90% of U.S. imports. The goal: bring manufacturing jobs back to the United States, generate trillions in tariff revenue, and punish China for its pervasive economic espionage and fentanyl distribution.
He’s not wrong about China. Beijing’s industrial espionage, exploitation of American research institutions, and escalating barrage of cyber-attacks pose a dire threat to U.S. national security and global leadership. However, U.S. efforts to counter these threats through industrial policy—executive orders, federal regulations, state legislation, and trade restrictions—have failed to combat China’s aggressive whole-of-government civil-military fusion regime. Instead, they overwhelmingly punish American firms, particularly small and medium-sized businesses.
Of all these measures, trade controls may be the most damaging. Tariffs generate tens of billions in federal revenue each year, but an estimated 93% of these tariffs are shouldered by American firms and taxpayers; the amount paid by foreign exporters (including China, but predominantly U.S. allies and partners) comprise a meagre 0.1% of federal revenue. And that’s just the cost for the private sector. Each time a new trade control is declared, U.S. taxpayers must foot the bill for a cascade of expensive federal investments in implementation, oversight, and compliance. The Bureau of Industry and Security, just one of eleven agencies responsible for enforcing U.S. industrial controls, is budgeted for $223 million in 2025.
The Consumer Technology Association calls U.S. trade policies “a compliance nightmare,” and for good reason. In 2022, President Biden’s first semiconductor export controls required 30 pages of administrative law. In 2024, new Bureau of Industry and Security rules spanned 210 pages. In January 2025, an additional 168-page rule regulated the “global diffusion” of advanced artificial intelligence hardware and software. And that’s not even considering the more than 700 state-level AI bills introduced last year.
If these controls effectively countered China’s illicit trade practices, making firms comply with thousands of pages of regulations might be justified. Unfortunately, they don’t. Unlike America’s partners and allies, escalatory spirals such as the 2018 U.S.-China trade war and China’s ongoing export cuts of critical minerals and electronics exemplify Beijing’s inclination to retaliate rather than capitulate when faced with unilateral penalties from Washington.
Neither have previous rounds of tariffs succeeded in bringing manufacturing back to the U.S. A study by the Harvard Kennedy School found that U.S. companies affected by tariffs between 2018 and 2019 overwhelmingly chose to downsize or move operations to the Indo-Pacific or Latin America rather than invest in domestic facilities. In 2023, trade restrictions and the Inflation Reduction Act’s complicated subsidy requirements led Ford Motor Company to scale down its $3.5 billion Michigan manufacturing park and reduce hiring and production targets for its other domestic projects.
The solution is not to rescind all industrial policies and give China free rein to achieve its authoritarian ambitions. Rather than copy Beijing’s modus operandi or double down on ineffective policies, the U.S. must pursue strategies that work.
First, bring back multilateral mechanisms to share enforcement costs with Europe. China has demonstrated surprising respect for and compliance with World Trade Organization rulings, and making European partners shoulder more of the bill could save hundreds of millions of dollars in duplicative oversight and enforcement at home. The United Kingdom’s complete overhaul of its export control system after the 2023 Atlantic Declaration demonstrates that strategic diplomacy can align international regulations with American interests. In line with Trump’s preferred strategy of “punish first, leverage later,” tariff relief could be a carrot to get allies on board.
Second, improve market access for smaller firms and research entities. The National Security Commission has warned that talent deficits in military and intelligence agencies are the “greatest impediment” to defending the United States against China by 2025. A program like Germany’s Sovereign Tech Agency, which supports open-source digital infrastructure that can be used by a wide range of actors, can kickstart innovation, reduce Washington’s reliance on foreign supply chains, and help American firms compete with China.
Finally, rather than relying on heavy-handed tariffs, the U.S. should use its openness to foreign investment as a strength. Demand-side commitments and diplomatic initiatives attract foreign capital while maintaining America’s commitments to free and fair trade.
Unfortunately, current trends suggest the U.S. is moving in the wrong direction. The upcoming 25% tariffs under “Liberation Day” are expected to lose the U.S. tens of billions of dollars and erode trust with allies and partners. But it’s not too late to change course. By leveraging the threat of counterproductive trade wars to negotiate policies that work, the Trump administration can change history. Once we stop fighting fire with fire, we can work on putting out the flames.
