President Trump admits that his tariffs will result in “temporary discomfort,” yet insists they’ll be “worth the cost that must be borne.” Trump is correct that his tariffs will cause “some disturbance,” but regrettably, he is mistaken in believing that over time, tariffs will foster prosperity and job opportunities.
Historical evidence indicates that tariffs inflict enduring economic damage, such as reduced production and lower incomes. Research involving 151 nations from 1963 to 2014 reveals that elevated tariffs diminish output and productivity, elevate unemployment rates, and exacerbate inequality. Investigations into US tariffs in 2018-2019 affirm that they did not enhance employment levels; rather, they negatively impacted manufacturing due to rising input expenses and foreign retaliation.
When the United States enacts a tariff, it escalates the cost of imported products for consumers and businesses within the country. Increased prices lead to decreased imports (which negatively affects foreign businesses as US sales decline), but domestic production doesn’t automatically increase in response.
Consider a domestic enterprise sourcing components from a foreign vendor for manufacturing equipment in the United States. When it incurs a tariff on imported parts, those heightened costs will erode its profits. A decrease in profitability generally results in reduced incomes for employees and business owners.
Instead of accepting diminished profits, the company might elevate its prices to pass the tariff burden onto its customers. For instance, if consumers usually spend $100 on the equipment, after tariffs, they might pay $110. This additional $10 expense limits customers’ spending elsewhere. As people cut their spending in other areas, profits for alternative businesses drop, leading to decreased incomes for their workers and owners.
Naturally, the primary aim of taxing imported products is to divert purchases to local producers, enabling them to set higher prices and achieve greater sales. The US equipment manufacturer may dodge paying the tariff directly by switching to an American-made component if available—but this shift doesn’t alleviate the discomfort.
To understand why adapting to American-made goods doesn’t enhance overall production, a bit of international economic knowledge is necessary. When imports decline, the dollar strengthens, rendering US exports more expensive for international buyers. Although some imports might be supplanted by domestic manufacturing, that same decrease in imports triggers a decline in US exports.
If the equipment manufacturer opts for an American-made part, it raises profits for the US part manufacturer, but burdens the equipment manufacturer with higher costs while impacting overall US exporters negatively through diminished sales.
Thus, tariffs are redistributive in nature. They impede the purchase of foreign-made goods, motivate consumers to shift to pricier domestically-produced items, and impose challenges on US exporters. While some domestic producers gain advantages, it does so at the detriment of other individuals and businesses within the domestic economy.
Clearly, tariffs elevate costs and prices while diminishing production and living standards, regardless of whether we continue to import or switch to local alternatives.
For example, the United States is the foremost exporter of aircraft and the biggest importer of textiles. Increased tariffs could steer manufacturing efforts from aircraft production to textile creation, leading to a decline in airplane exports in favor of more t-shirt manufacturing for domestic consumers.
Similar transitions would take place across the economy, prompting the use of more resources in the production of lower-quality goods that were previously imported at more affordable prices. Rising prices for the same products have impacts akin to wage reductions. Consider the real-world case of washing machine tariffs enacted in 2018 under the first Trump administration: these tariffs resulted in approximately 1,800 new factory jobs (with salaries beginning at $16 per hour) at a cost to US consumers of $800,000 per job.
In some instances, the US economy may lack the capacity to produce alternatives for imported products (and for some goods, it may be impractical to rely entirely on domestic supply, such as coffee and bananas). In other cases, if tariffs induce entirely new lines of production to develop domestically, that transition would take years to materialize and draw investments and labor away from other productive endeavors—whether higher-value manufacturing or service sector activities.
While tariffs could generate revenue for the US government, that income would come at a steep cost to the overall American economy. As tariffs redirect workers and investments to lower-value production, the economy deteriorates over time—not improves as envisioned.
Should foreign nations retaliate against US tariffs, the repercussions intensify. International tariffs will raise the costs foreign customers pay for US exports and negatively affect US exporters as their sales diminish abroad. Retaliatory tariffs may lead to depreciation of the dollar, which could mitigate some adverse effects on exporters while shifting the burden to importers. Nevertheless, production, incomes, and employment would still decline within export-driven sectors like agriculture and manufacturing due to retaliation.
