Jan 20, 2025. Only hours after being sworn in, President Donald Trump announced that Mexico and Canada, two of America’s biggest trading partners, would be tariffed on their exports starting February 1 The list of tarriffed countries would continue to expand, including all nations in the EU, and Israel. Most notably, a 145% percent tariff has been placed on Chinese goods, China responding with a retaliatory 125%.
So, why is Trump suddenly tacking on tariffs to every country? Tariffs are taxes imposed by the government on imports from foreign countries. Theoretically, they not only serve as a source of revenue but can also be used to safeguard domestic industries from foreign competition. The Trump administration believes that placing tariffs on foreign goods such as Chinese products will push Americans to spend on domestically produced goods, as well as lead to more investment in the country.
However, consensus among the economic community is that tariffs are “self-defeating and have a negative effect on economic growth and welfare”. Harvard economist Nicholas Gregory Mankiw suggests that “International trade is fundamentally good for the U.S. economy, beneficial to American families over time, and consonant with our domestic priorities”. With tariffs in place, international trade slows down because the exporting countries sell less to the tariff imposing country, and could escalate into a trade war.
Looking back to Trump’s first term, when Trump imposed tariffs on Chinese goods to combat “unfair trade practices”, it resulted in a trade war that caused a slowdown in global trade, volatile markets, and U.S. producers eventually needing government bailouts. This is because the tariffs by Trump caused retaliatory tariffs from China, which shook markets and disrupted global supply chains. Farmers lost access to the Chinese market, a huge consumer of soybeans, and the Midwest suffered especially. As a result, the Trump administration launched the Market Facilitation Program, which essentially paid 28 billion dollars to farmers as compensation.
These tariffs not only harm America’s international image but also American consumers. According to a study from the National Bureau of Economic Research (NBER) on the economic impacts of the US-China trade war during Trump’s first term, most of the economic burden was ultimately placed on the backs of US consumers, whose tax dollars are what increase tariff costs (which are not, as many seem to think, paid for by the exporting country). This is because the company usually passes the cost of tariffs onto the consumers and other businesses, which means internal consumers are being harmed.
Tariffs not only impact consumers, they also harm the businesses they aim to protect. While at a glance, placing taxes on foreign companies, especially Chinese ones, would logically drive consumers to American businesses, in reality, many American businesses rely on foreign manufacturers and suppliers. Because companies face increased costs, they must either raise prices, reduce wages, lay off workers, or shut down. A study from the NBER estimated that the average household paid hundreds more because of tariffs, and tariffs disproportionately affected working-class and low-income families.
Some argue that tariffs protect American industries and promote fair trade. Because tariffs are believed to protect domestic industries from unfair foreign competition, it, in turn, strengthens the US’s internal economy. However, this oversimplifies the complex economic situation of the globalized world, where very few jobs actually return to the US because of tariffs, as imposing tariffs on China does not make it easy to “move everything back home”, neither would it make companies come back to the US, since manufacturing is still relatively more expensive.
While the Trump Administration may continue to slap meaningless tariffs on foreign countries, this does nothing but alienate trade partners and hurt the American people. It is important to keep in mind that legitimate fair trade is built through international agreement and cooperation.
