The U.S. is locked in a multifront battle with virtually every major trading partner, in an effort to extract concessions that it expects to help cure the "twin deficits" that have bedeviled the world's largest economy for decades.
On Friday, negotiations on a new North American Free Trade Agreement hit an inflection point. Talks between the U.S. and Canada reached an impasse, with talks set to continue next week. Yet President Donald Trump has made clear he plans to strike a new deal within 90 days — with or without the U.S.'s Canadian partner.
Percolating in the background is the growing likelihood that the U.S. will impose an additional $200 billion worth of tariffs on China as early as next week, Bloomberg reported on Thursday.
It all raises the question of what Trump's endgame could look like, if the mere threat of a global trade war becomes an actuality. Economists and investors have been sweating over the consequences for the world economy if the U.S. can't reach a consensus with major economies like Europe, Canada and particularly China.
According to some economists, at the heart of Trump's thinking about the trade war lie two key assumptions: That the world's largest economy can narrow both its burgeoning deficit by renegotiating commercial ties with its major trading partners, and that tariffs can help accomplish these goals — by at least forcing countries to the bargaining table.
In early August the president hinted as much himself ,when he declared that his menu of tariffs were working "big time." He raised a few eyebrows when he claimed that tariffs could somehow pay down the federal debt, which currently stands at more than $21 trillion.
According to some economists, Trump's declaration harked back to an era when the federal government's main source of tax revenue was derived from tariffs. According to economic historian Brian Domitrovic, that status quo prevailed until the early 20th century, but declined as the U.S. economy developed into the world's most advanced.
The president's argument got a modest boost from Congressional Research Service data, which showed that the U.S. reaped more than a billion in new revenue from steel and aluminum tariffs.
However, economists like David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at Brookings Institution, think it's "not plausible" that the U.S. will collect enough money to pay down the debt — especially with the federal government spending with no end in sight.
"The president seems to be in love with the budget we had 100 years ago," Wessel told CNBC in a recent interview. "Once upon a time the federal government got most of its revenue through tariffs, but at the time, the federal government was much smaller [and] there wasn't Social Security, Medicare, Homeland Security" and other big-ticket spending items that cost trillions, he added.
"It's hard to believe we're going to get a lot of revenue out of this, and there's no way we get enough to start paying down the debt," Wessel said.