I had been wanting to write about the customs duties and trade wars that Donald Trump has been bringing back into the spotlight for quite some time. When I say “Trump tariffs” here, I am not referring to just one specific customs duty, but rather to the broader “I can impose additional tariffs if necessary” approach that we have been seeing frequently lately. In other words, it reflects a new understanding of trade in which customs duties are used not only as an economic tool, but also as a language of negotiation, pressure, and political strategy. Once I waited a little, the picture became clearer. While some tariffs were increased, some threats were softened, delayed, or moved to the negotiating table.
While following these developments, I felt that a very basic question was often being overlooked. Can countries really raise and lower customs duties however they want? And if they can, does every tariff increase actually create a gain for their own economies?
At first glance, the answer to these questions may seem quite simple. After all, if a country imposes higher taxes on imported products, foreign goods become more expensive and domestic producers gain an advantage. This is why tariffs have long been among the most important economic tools for protecting domestic industry, reducing trade deficits, or supporting strategic sectors.
However, the modern global economy now has a much more complex structure than in the past. Today, the engine of a car produced in Europe may come from one country, its electronic components from another region, and its raw materials from entirely different continents. Moreover, this production chain depends not only on parts, but also on energy prices, transport methods, port operations, and oil flows. For this reason, a trade decision taken by one country no longer produces consequences only within its own borders.
You do not need to be a mathematician or an economics professor to understand this. Even if a fully closed economic model may appear possible in theory today, in practice, it can create serious costs. From the products on store shelves to energy prices, a large part of our daily lives now depends on the flow of global trade.
Comparative Advantage and Modern Trade
This is exactly where one of the most important concepts in international trade theory comes into play: comparative advantage. According to this theory, which has been discussed in economics for years, total welfare can increase when countries specialize in certain areas and trade with each other instead of trying to produce everything on their own. It may sound simple, but this idea still lies at the heart of modern world trade.
Let us think of a simple example. A country may be able to produce both automobiles and textiles. But this does not mean that producing both domestically is the most efficient option. If one country is more efficient in automotive production, while another has a relative advantage in textiles compared to automobiles, then total welfare can increase when each country specializes and trades in the area where it is relatively stronger. This is the core message of comparative advantage theory. The purpose of trade is not simply to “buy cheaper goods from abroad.” The real issue is that countries allocate their resources to the areas where they can use them most efficiently, thereby increasing total economic benefit. However, there is an important point here. The fact that free trade can increase total welfare does not mean that tariffs should never be used. In some cases, countries may resort to tariffs to protect domestic industry, support strategic sectors, or manage trade balances.
The truly critical question begins here. If a tariff can provide benefits up to a certain level, where is the limit of that level? At what point does a protectionist policy stop supporting the economy and start creating costs instead? The answers to these questions lead us to the theory of the optimum tariff.
Trump Tariffs and the Theory of the Optimum Tariff
The approach known in economic theory as the “optimum tariff” argues that tariffs applied at certain levels by large economies may provide some short-term advantages. Countries with strong bargaining power in global trade may try to protect certain domestic sectors and improve their terms of trade through import tariffs.
But the most important point of the theory is often overlooked. This approach does not say that continuously increasing tariffs will create gains forever. On the contrary, it argues that beyond a certain point, higher tariffs begin to generate costs rather than benefits. For example, in 2025, China responded to new US tariff moves by imposing additional customs duties on American products and introducing export controls on certain critical items. This showed that tariffs are used not only as an economic tool, but also as a diplomatic and strategic one. At the same time, it also demonstrated that trade wars often trigger retaliation from the other side.
At the beginning, some tariffs may provide advantages to domestic producers in specific sectors. Large economies, in particular, may try to influence global prices and trade conditions to some extent through taxes on imports. This is exactly the starting point of the optimum tariff theory.
However, whether this advantage is sustainable is a separate question. As tariffs rise, other countries may introduce retaliatory duties, global trade volume may contract, and companies may reshape their production plans. Since production processes are now spread across many countries, changes in trade policies affect not only imports but entire global supply chains.
This is why the concept of “optimum” holds such a critical place in economic literature. Because even though tariffs may theoretically provide benefits up to a certain level, once that threshold is exceeded, they can begin to reduce total economic welfare.
The Current State of Trump Tariffs
In 2025, trade tensions between the United States and China escalated sharply once again. In April 2025, the Trump administration increased additional tariffs on Chinese products, and in some product groups, the total tax burden rose above 100 percent.
China responded by imposing additional tariffs on American products. Some retaliatory tariffs that were initially announced at around 34 percent were later raised to 84 percent and then to 125 percent. In addition, China began applying export controls on certain rare earth elements and other critical products.
However, the process did not evolve only in the form of mutual tariff increases. Especially in the technology sector, some products were later exempted from tariffs or temporary exceptions were introduced. This showed that modern trade wars are shaped not only by economics but also by diplomatic bargaining processes.
At the point reached today, trade relations between the United States and China have still not fully stabilized. However, it appears that in recent months both sides have restarted talks in some sectors regarding tariff reductions and the normalization of trade.
Why GATT and the WTO Matter After Trade Wars
After the Second World War, the goal was to place global trade under certain rules rather than allowing it to proceed in a completely uncontrolled manner. This was because in the 1930s, countries’ mutual increases in customs duties had caused world trade to contract severely and deepened the global economic crisis.
One of the most important structures that emerged after this process was GATT (the General Agreement on Tariffs and Trade). The main purpose of GATT was to prevent countries from turning to completely uncontrolled protectionist trade policies and to create a more predictable international trading system.
Over time, this structure evolved into the World Trade Organization (WTO) and became one of the fundamental rule-setting institutions of global trade. As a result, although countries can still apply customs duties, the process no longer proceeds in a completely unlimited or ruleless way.
When Trump tariffs began once again to be used as a tool of negotiation and pressure, China’s response was not limited to counter-tariffs alone. China also filed an official complaint at the WTO against the new US tariff measures, arguing that they were inconsistent with WTO rules, including GATT 1994. This example shows that modern trade wars do not unfold only through mutual tax increases between two countries. At the same time, countries also try to manage these disputes through international trade rules and dispute settlement mechanisms.
However, in recent years, especially with the rise of US-China rivalry, it is possible to say that the world has entered a new era of trade. Because customs duties are now being used not only for economic protection, but also as part of geopolitical power struggles.
Why the Strait of Hormuz Affects Global Trade
Tensions around the Strait of Hormuz in recent periods have once again shown how sensitive the balance of the global economy really is. A significant share of world oil trade passes through the Strait of Hormuz. For this reason, even the smallest security risk in the region can affect not only energy markets, but the entire global economy, from logistics costs to production expenses.
In fact, this reveals one of the most important realities of modern trade. Today, free trade no longer means only “countries selling goods to each other.” Ports, energy flows, maritime transport, supply chains, and geopolitical balances have all become inseparable parts of the global trading system.
For example, sharp increases in oil prices affect not only the energy sector. They can also create chain reactions of cost pressure in many areas, from transport costs to production expenses. This creates a wide economic impact, extending from importing companies all the way to end consumers. That is why building a completely closed and independent trade system appears highly difficult in practice in modern economies. Countries now depend not only on their own production, but also on the stability of global trade networks. In the end, the global economy is shaped not only by production capacity, but also by the sustainability of trade networks.
Why Trade Wars Are More Complex in the Modern World
Although customs duties remain an important economic tool, it is becoming increasingly difficult to see them as a solution on their own in the modern world. Today, economic power is linked not only to protectionism but also to the extent to which a country is integrated into the global trading system.
From the perspective of companies engaged in foreign trade, the process becomes even more complex. Constantly changing tariffs, new regulations, geopolitical risks, and logistics costs now affect not only major state policies but also day-to-day commercial operations directly.
In the modern world, approaching foreign trade processes only from an operational perspective is no longer enough. Strategic planning is becoming increasingly important. In today’s trade environment, the biggest risk is not only high costs but also failing to notice shifting global balances in time or responding too late.
The trade wars that have returned to the agenda through Trump’s use of tariffs as a tool are not actually a new debate. However, today the world economy is far more interconnected, more sensitive, and more complex than before. For this reason, even if tariffs may provide some short-term advantages, it is becoming increasingly difficult for them to produce a sustainable solution on their own in modern economies.
That is why customs duties should be evaluated not only through the question of “Will they rise or fall?” but also through the broader question of how such changes will affect companies, supply chains, and foreign trade operations.
At GGM, we also view customs consultancy and foreign trade operations not merely as customs procedures but as strategic processes that must be assessed alongside evolving global trade rules, regulations, and operational risks. Because in today’s trading environment, accessing the right information at the right time has become just as important as making the right declaration and carrying out the right operation.
References
- Krugman, P.R., Obstfeld, M. and Melitz, M.J. (2018) International Trade: Theory and Policy. 11th edn. Global Edition. Harlow: Pearson Education.
- World Trade Organization (1947) The General Agreement on Tariffs and Trade (GATT 1947). https://www.wto.org/english/docs_e/legal_e/gatt47.pdf
- World Trade Organization (n.d.) World Trade Organization. https://www.wto.org/
- Reuters (2025) China tariff retaliation and US-China trade war developments. https://www.reuters.com/
- International Monetary Fund (n.d.) Trade and globalization reports. https://www.imf.org/
- World Bank (n.d.) Global trade and economic outlook. https://www.worldbank.org/
