Investors discounted everything Trump has ever said about trade and tariffs. We’re all going to pay for that mistake.

Illustration by The Atlantic. Sources: Getty; Saul Loeb / AFP / Getty.

April 4, 2025, 4:35 PM ET

After Thursday’s stock-market sell-off provoked by Donald Trump’s announcement that the United States would be imposing new tariffs on almost every country in the world, the one thing we can say for sure is that Wall Street blew it. In the three trading days leading up to Trump’s much-anticipated “Liberation Day” speech, the market rose steadily as investors apparently convinced themselves that Trump would not do anything too crazy. Surely moderation would prevail.

It did not, much to the chagrin of the stock market and anyone with a 401(k). Trump’s protectionist scheme—which he’s applied unilaterally through a dubious invocation of emergency economic powers—is unprecedented in modern times. It inflicts crushingly high tariffs not only on an obvious target such as China, America’s emerging strategic rival, but also on such countries as Vietnam (which makes much of the clothing and shoes that Americans wear) and Bangladesh, as well as on our allies, the European Union and Japan. Although Trump described these tariffs as “reciprocal,” the reality is that they’re nothing of the sort: In most cases, they’re far higher than the rates other countries impose on us. This lays the groundwork for retaliation by our trading partners, potentially leading to a trade war.

All of this stunned investors, which is why the sell-off was so sharp. (Even though the timing of Trump’s announcement on Wednesday coincided with the New York Stock Exchange’s closing, the rout began in after-hours trading even as he was speaking.) To a degree, one can excuse the markets for their utter lack of foresight. Trump is nothing if not capricious, and in the past couple of months, he first imposed tariffs on Canada and Mexico and then put them “on pause.” The notion that he might back off his more extreme protectionist impulses was wishful but not unthinkable.

In the end, however, investors’ unwillingness to believe that Trump would overturn the global trading order has to be seen as a willful blindness to who he is and what matters to him. In general, Trump is uninterested in policy, but trade is the one exception, and always has been. His attitude toward trade—namely, that trade deficits are horrible and tariffs are great—has been strikingly consistent for almost 40 years. The way he talks about trade has stayed the same, and his position on tariffs has stayed the same.

What happened on Wednesday, in other words, was not a case of the president throwing the market a curveball. It was a case of him doing exactly what he’d promised to do and what he’s wanted to do for decades.

Understanding Trump’s view requires no great interpretive skills, because his position on trade is a very simple one: If the U.S. has a trade deficit with another country, that means the U.S. is being “ripped off” (a phrase he has used many times in his political career). In the real world, a bilateral trade deficit, meaning that the U.S. buys more from a country than it sells to that country, can happen for many reasons, many of them non-nefarious. The U.S., for instance, buys agricultural products and basic manufactured goods from developing countries that don’t have a big appetite for Boeing airplanes or Microsoft software. So those countries typically take the dollars they earn and buy U.S. government bonds, knowing that their money will be safe, instead of purchasing American goods. That creates a trade deficit, without anything sinister behind it. But for Trump, any trade deficit means that Americans are being played. And Trump hates few things in this world more than feeling that he’s been played.

You can see this conviction that any trade deficit is a problem in the peculiar formula that the administration used to calculate the supposed “tariff rates” Trump says countries are charging us. In his Rose Garden speech, Trump claimed that those rates represented the impact of overt tariffs plus non-tariff trade barriers (such as currency manipulation and restrictive regulations). But that’s not where the numbers came from. Instead, the administration calculated its rates simply by dividing our trade deficit with a country by our imports from that country. As a result, any country with which we have a high trade deficit got labeled as having a high tariff rate, even if its actual rate might be low; likewise, countries with which we have small trade deficits—or, in some cases, a surplus—got labeled as having low tariff rates, even if their actual tariffs might be high.

As former Treasury Secretary Larry Summers wrote on X, “This is to economics what creationism is to biology, astrology is to astronomy, or RFK thought is to vaccine science.” The Trump formula was silly and deceptive, but it was also a perfect expression of his view that trade deficits are evidence that America is being ripped off. The sole reason you would equate a trade deficit with a tariff rate is because you think that trade deficits exist only as a result of trade barriers or other manipulative activity. In fact, that’s exactly how a White House official explained the reasoning: “The model they used is based on the concept that the trade deficit that we have with any given country is the sum of all the unfair trade practices, the sum of all cheating.” And that’s exactly what Trump thinks. So it’s no surprise that, as The Washington Post reported today, Trump personally decided to use that formula, instead of an approach that would have actually targeted high trade barriers.

Using this formula also has another goal: The only way for a country to bring down its tariff rate according to the White House model—and therefore have Trump lower his new tariffs in return—is for the country to dramatically narrow the United States’ trade deficit with it. Simply lowering trade barriers, if they exist, won’t be enough, because they don’t factor into the random calculation of these so-called tariff rates. Israel, for instance, eliminated all of its tariffs on U.S. imports on Tuesday. Trump still imposed new tariffs on Israel on Wednesday. That’s because Trump’s real goal is not really to eliminate trade barriers; it’s for the U.S. not to have a trade deficit with any country in the world. Only then, theoretically, would he feel that America is not being ripped off.

That sounds crazy. And it is. There is no good economic reason the U.S. should have zero bilateral trade deficits; there is no chance that we will eliminate all of them, and if we did, it would be an economic disaster, with Americans forced to sharply curtail their purchases of everything from electronics to apparel. But this is what Trump has been working for all along. In 2017, during his first year in office, he said: “The United States has trade deficits with many, many countries, and we cannot allow that to continue.” He’s told us who he is and what he wants. We’re all going to pay the price for believing otherwise.