I underestimated tariffs. Here is what I've learnt.

I used to quietly feel smug watching others underestimate the power of tariffs in the hands of the United States, especially in discussions about the balance of power between China and the U.S., only to realise I had been underestimating them myself.

1. The mere threat of tariffs can coerce behavior.

2. Applying even low, broad tariffs breaks the illusion that any country is immune and increases bargaining power.

3. Markets have learned to distinguish between a threat, a temporary tariff, and a permanent one. This helps explain why the U.S. economy has absorbed much of the tariff-related volatility.

4. The U.S. could lose leverage if enough of the world joined a unified trade bloc and bargained collectively. But this remains unlikely. Most countries are competing to boost exports and create jobs, which puts them in competition with each other rather than cooperation.

5. By targeting BRICS members, the U.S. is using tariffs to weaken emerging trade blocs. Any bloc without strong internal governance, such as the EU has, is unlikely to survive a direct challenge from the U.S.

6. Tariffs have become tools of industrial policy. The U.S. is now using them to incentivise domestic manufacturing, rebuild supply chains, and advance strategic industries like semiconductors and clean energy.

7. Tariffs also provide domestic political leverage. They offer a way to pressure companies to reshore operations and send a strong message to voters about protecting American jobs and industry.

All of this shows that when you are the world's buyer of last resort, and exporters are competing for access to your market and there is no other country with a big enough consumer market to absorb supply, you hold a very strong bargaining position.

It’s worth noting that the world wasn’t always configured this way. It’s only under today’s conditions where global trade is tightly integrated and access to the U.S. market is essential for many economies that tariffs carry this kind of power.  This is part of the reason I was unable to make this insight earlier.

So what do you think? Is the US position as strong as it seems? What can individual nations and trade blocs do to defend themselves from the US?