The Tariff Fantasy: Why Do People Still Fall for It?
How Protectionism Fails to Deliver on Its Promises
When it comes to the debate about tariffs, I have noticed that many seem to be pretending that this is uncharted territory. It’s as if President Trump wasn’t already president and hasn’t already tried tariffs. But he was, and he has. Have we learned nothing? Donald Trump spent two of his first four years in office imposing tariffs. Joe Biden then kept most of them in place. And yet—shockingly—the promised economic renaissance never came. But somehow there are still people who buy into the idea that tariffs are some kind of miracle tool for restoring American greatness.
Of course, those people forget that trade is a relatively small share of the economy, about 20 percent And manufacturing is an even smaller share roughly 10 percent. They also ignore the fact that in the sector where most Americans work and want to work—services—we have a trade surplus. Also, industrial production—which is broader than manufacturing output and includes mining and energy—reached an all-time high last month after recovering from the pandemic. With that in mind, let’s look at what the Trump tariffs from 2018-2019 achieved.
I don’t have enough fingers to count the miracles we are told the tariffs will achieve, but these are among the most repeated ones: restrict imports and raise revenue (a total contradiction), shrink the trade deficit, create manufacturing jobs, and force other countries to lower their tariffs.
The reality is different. We got the tariffs but trade deficit didn’t shrink. If tariffs were a magic bullet for reducing trade imbalances, why hasn’t the trade deficit declined? (These so-called “imbalances” aren’t really imbalances at all. But that’s a topic for another time.) The U.S. trade deficit continuously increased under Trump and Biden.
Industrial output was on the rise from 2016 to 2018. Then, the ‘tariff man’ applied his tariffs, causing output to fall and weakening the economy as we headed into the pandemic. Industrial output has been relatively flat since. Despite all those tariffs, manufacturing employment is at best flat too, or in decline.
As predicted, other countries retaliated with their own tariffs, inflicting a roughly $97 billion levy on our exports. When China slapped tariffs on U.S. agricultural exports, farmers lost crucial markets overnight. The U.S. government then stepped in with billions in farm bailouts—meaning taxpayers were left footing this bill after having been compelled by Trump’s tariffs to pay higher prices. Direct U.S. agricultural export losses due to retaliatory tariffs totaled more than$27 billion from 2018 through the end of 2019.
To my knowledge, no country lowered tariffs as a result of Trump’s first-term tariffs. We should be working to reduce foreign tariffs, not causing them to increase.
What about steel tariffs? This not the first time the president slapped a 25 percent tariff on steel imports under the premise of boosting domestic production and jobs in the name of national security. And he did it even though 79 percent of the steel consumed in the U.S. is domestically produced, and the Department of Defense found no evidence that global steel imports posed a genuine security threat. Less than 3 percent of America’s imported steel came from China. Seventy percent came from Canada.
Here's what we know. The steel tariffs imposed a tax on U.S. companies that use imported steel to make cars, washing machines, and countless other products. (The cost of this tax, of course, is shared by American consumers.) The United States has only about 140,000 workers in the steel industry, compared to around 6.5 million workers employed in steel-consuming sectors such as construction, manufacturing, and equipment production. These downstream businesses saw their costs skyrocket. A 2020 analysis found:
Tariffs on goods used by a large number of U.S. firms, like steel, make it difficult for U.S. producers to compete against foreign rivals, both at home and in export markets. Tariffs on steel may have led to an increase of roughly 1,000 jobs in steel production. However, increased costs of inputs facing U.S. firms relative to foreign rivals due to the Section 232 tariffs on steel and aluminum likely have resulted in 75,000 fewer manufacturing jobs in firms where steel or aluminum are an input into production. In addition, depressed global demand for durable consumption and investment goods related to policy uncertainty and increased costs from the trade war may be dampening demand for steel and weighing on steel prices. Tariffs on additional inputs into production made with steel are likely to exacerbate these adverse effects on the manufacturing sector.
And yet, here we go again. Protectionists are totally ignoring this experience and acting as if tariffs haven’t already been tried—and failed.
I know it’s been said often but it is worth repeating: Tariffs are a tax on the domestic economy, plain and simple. Because trade is mutually beneficial, tariffs do impose some harm on foreign suppliers, but the bulk of the harm falls on you, my fellow Americans. Even though tariffs shift consumer demand to domestic producers, they do so only by raising the prices that consumers pay. And the resulting protection from competition that tariffs bestow on domestic producers in the long run lead not only to higher prices but also to less innovation, less cost-cutting, and lower quality.
So, whenever you see a politician standing on stage, chest puffed out, promising that tariffs will “bring back jobs” or “make America strong,” remember what they’re actually saying: “We’re going to make everyday goods more expensive, disrupt supply chains, and force industries to work with higher costs and fewer options.”