Investing.com -- Since upending markets following his April 2nd ‘Liberation Day’ reciprocal tariff announcement, there have been considerable questions about whether President Donald Trump really wants to negotiate trade deals and keep America the bastion of free trade, or if he wants to keep tariffs long term and turn America into a tariff country.
The messaging coming from the White House has been incoherent.
On the one hand, since announcing the 90-day reciprocal tariff pause on all countries except China on April 9, the President and those in the administration have consistently stated that trade partners are clamoring for a deal, and the U.S. is in negotiations with more than 70 countries. On the other hand, Trump has also consistently boasted about America getting rich off tariff revenue and discussed reducing federal income taxes for some and possibly replacing the income tax altogether.
Recent commentary from the President and others in the administration illustrates the situation perfectly.
Today, for example, Treasury Secretary Scott Bessent said that the U.S. is making “substantive movement on negotiations with many of our trading partners.” He said negotiations with our Asian trading partners are going very well, point to Korea, India, and Japan. Bessent said the U.S. is in discussions with 17 of its top trading partners ahead of the expiration of the 90-day pause.
The comments from Bessent came just hours after the President said people making less than $200,000 per year could have taxes “substantially reduced, maybe even completely eliminated” once tariff related tax cuts are in. He added the External Revenue Service, which will collect tariffs, is “happening.” Many times over the past several months, Trump pointed to America being at its strongest in the late 1800s when America was flush with cash because of tariffs. “We were at our richest from 1870 to 1913,” Trump has said. “That’s when we were a tariff country.”
So, which is it, trade deals and free trade, or tariffs and tax cuts?
A clear picture is coming into focus about the extremely opposing views on tariffs within the White House and in Trump’s ear.
Peter Navarro is the hardline pro-tariff advocate on one side. Meanwhile, Bessent and possibly Howard Lutnick are the pro-free-trade advocates on the other side. As recently reported by The Wall Street Journal, while Navarro was away, Bessent and Lutnick pleaded with Trump to pause the reciprocal tariffs as the bond market was starting to falter. According to the story, Bessent and Lutnick stood over Trump’s shoulder as he typed the Truth social media post announcing the tariff pause on April 9th. Trump later told TIME magazine that it was his idea, not theirs.
The thesis that the U.S. government could live off tariff revenue seems like a big stretch. In 2024, for example, about 50% of all U.S. federal revenue came from individual income taxes. While tariff revenue has been pouring into the Treasury at a record amount in April due to the new tarrifs, the revenue may not even be enough to pay for the extension of the Tax Cuts and Jobs Act, let alone anything else.
Standard Chartered strategist Steven Englander recently highlighted that the U.S. collected record-high customs duties of $15 billion for the first 16 business days of April (through April 22). While up 130% from 2024, he said the increase in tariff revenue is likely to total a little less than 0.4% of GDP over a full year, which is insufficient to offset the fiscal cost of the planned Tax Cuts and Jobs Act extension. Also, while the tariffs are lifting government revenue, they could also trigger inflation.
If the new tariff revenue is not enough to cover an extension to Trump’s 2017 Tax Cuts & Jobs Act, it would seem suicidal to cut federal income taxes for those making less than $200,000.
So why the mixed messaging on tariffs?
A theory is emerging that the cross-messaging and chaotic nature of Trump’s tariff rollout could all be part of a carefully executed game theory. That’s at least what Bessent would like the U.S. public to believe.
“Well, in game theory, it’s called strategic uncertainty,” Bessent said on ABC News’ "This Week" over the weekend. “So, you’re not going to tell the person on the other side of the negotiation where you’re going to end up. And nobody’s better at creating this leverage than President Trump. He’s shown the high tariffs, and here’s the stick. This is where the tariffs can go. And the carrot is, come to us, take off your tariffs, take off your non-tariff trade barriers.”
If the pro-free-trade faction in the Trump administration wins out, this could put the U.S. in its best negotiating position to level the playing field on trade. However, if the pro-tariff arm takes hold, any trade negotiations may be just lip-service, and the U.S. could be headed in an entirely different direction - one that is uncertain and unpredictable.