The Economic Impacts of Trump's Tariffs
*Note: This post will look at tariffs in an apolitical way, examining both the positives and negatives of them.
President-elect Donald Trump has promised to impose large tariffs on all or most imported goods into the United States, as explained in this PBS article. Trump has praised tariffs, calling it "the most beautiful word in the dictionary" and saying they "are the greatest thing ever invented." Trump believes that the tariffs "will create more factory jobs, shrink the federal deficit, [and] lower food prices." Trump's latest proposals include a 60% tariff on Chinese goods, a universal 20% tariff on all imports, and even higher tariffs on specific targets, such as a 200% tariff on John Deere exports to the U.S. Economists, however, express skepticism, warning of inefficiencies, consumer cost increases, and the potential for retaliatory trade wars. A study found that Trump's previous tariffs did little to revive American manufacturing jobs and harmed farmers and industries reliant on imports.
The Case for Tariffs
From an economist's perspective, tariffs can serve as a valuable tool to protect domestic industries from foreign competition. By imposing taxes on imported goods, governments can shield up and coming or strategically important industries (i.e. companies that build fighter jets), allowing them to grow and compete globally, or be big and strong enough where the U.S. could rely on them if needed. Tariffs can also be used as a corrective measure against unfair trade practices, such as dumping or state subsidies, and can help balance trade between countries. Finally, they provide a source of revenue for governments, which can be redirected to invest in public goods or support industries in transition, or be used to cut our rapidly growing national debt.
The Case Against Tariffs
On the other hand, tariffs can often create inefficiencies in the global market. They distort the natural allocation of resources by incentivizing production in less competitive industries and raising prices for consumers. Because production in America is more expensive than most other countries, mainly due to the price of labor and labor laws, businesses will have higher input costs which will raise prices for consumers. Another negative of tariffs is that they can make domestic industries less competitive and efficient because they hinder competition. Additionally, tariffs can provoke retaliatory measures from trading partners, which has the possibility of starting trade wars with other countries, which would hurt the U.S. economy.