Against Tariffs
Tariffs – both in general and in the current case – are dumb and bad.
The biggest and most impactful issue in the country right now is the same as it was before last November’s presidential election: the state of the economy. Now-President Trump promised to drastically ameliorate the economic conditions of the average American and, after four years of Joe Biden’s failed policies and supercharged inflation, they bought what he was selling. Likely remembering the state of the US economy in the months before the outbreak of Covid changed everything, they voted in significant numbers for Trump, putting him over the top in every last swing state. Despite much chatter post-election about immigration, crime, cultural politics, and foreign policy being the key issues of the race, the fact is that more voters made their decision to pull the lever for Trump because of economic factors than anything else. And that is what makes the administration’s current policy so deeply inscrutable and alienating for so many of those same voters.
The economy has not been fixed, but degraded. Stock markets have cratered, inflation has only slightly declined, economic uncertainty is rife, and promised spending cuts have failed to materialize in any meaningful way – Elon Musk’s ketamine-fueled protestations notwithstanding. And all of this chaos is driven by one particular policy: tariffs. Trump did campaign on this issue – I argued against it at the time – but his focus was more on criticizing Biden/Harris policy outcomes than it was on how he would fix their errors. The electorate shared this focus, but may very well come to regret it. Because for a man who has switched his political positions more times than he has gone bankrupt (thrice, so far), tariffs are the one idée fixe over the course of his all-too-long time in the public spotlight. Trump is never consistent, but the one exception that proves the rule is this peculiar obsession. He was pushing tariffs as the solution to all America’s ills in the 1980s, but his target then was primarily Japan. Now, every nation on Earth has come under the Damoclean sword of a Truth Social tariff threat. The problem with this attitude is that it is completely, woefully wrong.
Tariffs as a cornerstone of economic policy are ineffective at achieving the ends claimed for them by proponents while also being quite effective at doing lasting economic damage, both to firms and individuals. They are a terrible policy for modern-day America with few, if any, redeeming qualities. Let us count the ways.
The main point of contention about tariffs that Trump and his supporters get completely wrong comes down to the question of tax incidence. Tariffs, after all, are taxes on imports; nothing more, nothing less. The issue here is who ends up footing the bill. Tariff proponents argue that foreign exporters are the ones who pay the tariff, as it is the goods they produce and sell to Americans that are being taxed. This is a simplistic reading of the situation that remains wholly at the surface-level and therefore does not adequately answer the question. In reality, tariffs are paid almost exclusively by the importing consumer or company, whether that be on finished goods, component parts, or raw materials. Just as with other taxes and fees, most corporations adjust their prices accordingly to retain a decent profit margin, which means generally passing the cost on to customers. When tariffs hit multiple levels of products, applying both to inputs and final outputs, costs across sectors increase, triggering broad inflation as supply chains and consumer preferences shift (if they do, which I will touch on later). Companies generally do not face significant consumer pressure to absorb these tariffs, as the costs hit in a dispersed-enough way to make singling out any one seller for scorn difficult, if not impossible. When they do bear some of the tax themselves, this hurts their bottom line, making them worse off for their employees and shareholders. Overall, foreign exporters rarely pay the cost of tariffs, which instead fall primarily on Americans, whether they be individual consumers or businesses that use materials sourced abroad.
Now that we understand who pays the cost of tariffs, we can address the flawed and conflicting arguments made in favor of them by the New Right/MAGA protectionists.
The first of these arguments that has been pushed by everyone from online pundits to Commerce Secretary Howard Lutnick is that tariffs will raise massive revenue – enough to balance the budget and even replace the income tax as our government’s primary revenue source. They argue for the creation of an External Revenue Service and an abolition of the Internal Revenue Service (IRS), as only tariffs paid by foreigners will fund the federal government. As we already know, it is not indeed foreigners who pay tariffs, but domestic consumers and producers. Leaving that aside, the idea that tariffs can replace income taxation in 2025 is patently insane. Yes, America used to operate in this manner, as we did not have a formal and permanent income tax until the ratification of the Sixteenth Amendment in 1913, but that America is not this America. We live in a highly globalized economy, where trade is omnipresent and no complex product is or can be sourced within one nation. The Internet allows worldwide communication and commerce instantaneously, breaking down geographic barriers. The globe is fully interconnected and mutually dependent.
In the America of William McKinley, apparently Trump’s new role model, domestic production was sufficient for many of our most important goods. But that is because the standard of living was incredibly low, the necessary goods for daily life were fairly homogenous, and the rapid expansion of the continental economy worked to provide materials for the less-complex products of the time. Returning to such a low standard of living would be entirely unacceptable for the overwhelming majority of Americans, as it well should be. But tariff proponents argue that the McKinley tariff policy drove the economic boom of the Gilded Age, an era where America was truly great and was a manufacturing powerhouse. The problem is that this is simply incorrect. If anything, McKinley’s tariff policy was a net negative for manufacturing and economic growth, reducing productivity and making America worse off than it otherwise would have been with a more open trade policy. The tariffs he proposed during his time in Congress drove inflation and contributed to a recession, while the ones he pushed during his presidency were counterproductive. The real success of the era was not due to tariff policy, but extremely high levels of immigration, low federal spending, and the massive economic boom provided by the settling of the American West and its linkage to the older lands east of the Mississippi by rail. The first two factors are antithetical to the Trump movement and the last is an irreproducible product of a specific historical era.
America now is also vastly different than America then because our government spending, even if adjusted for inflation, is massively higher than it used to be. Since the McKinley administration, we have seen the growth of the military into a force for global power projection (largely due to the extracontinental expansion carried out by McKinley himself), the creation of a sizable social safety net for the elderly and the indigent, an enormous rise in our regulatory bureaucracy and the costs that creates and imposes, and a sea-change in how Americans perceive the federal government as compared to the states and localities – as the prime source for public expenditure and lawmaking. The massive growth of government can be curtailed, but it will never be reversed to the state in which it was during the 19th century; the world is simply more complex than it was then. If we are to finance our spending with tariffs, or even go so far as to totally eliminate deficits through them, we are going to have to massively increase our imports – which tariffs, ironically enough, deter. America, the world’s largest importer, only imports about $4 trillion worth of goods and services annually. Our annual budget is currently $6.75 trillion, much of which is debt-financed, as we have a revenue shortfall. Even if we tariffed imports at 100% of their value (which would diminish trade massively, but let’s ignore that for now), we would have an even larger budget shortfall than we do today. The math simply doesn’t work.
And that brings us to the second major argument used by the tariff proponents – and one that is mutually exclusive with the revenue generation argument – the claim that tariffs will expand manufacturing in America by protecting domestic industries. This is a seriously flawed contention that revolves around a basic misapprehension of how the current American economy functions. The tariff-lovers argue that we need protection for industry as our economy has been hollowed out and our export business decimated, hurting American workers most of all. Neither is correct. As of 2022, America was the second-largest goods exporter on the planet, behind only China, and the single largest exporter of services. The former tallied $2.1 trillion, while the latter nearly reached $1 trillion itself. (Who the largest buyers of those goods are will come into play later on.) That does not seem like a paltry sum for a nation that has a third of China’s population. When it comes to productivity, we are even better. Despite having fewer workers employed in manufacturing as compared to 50 years ago, output per labor hour has increased significantly, showing that innovation in the sector has grown, not shrunk. Working class wages have grown as well, hitting their inflation-adjusted peak this January – yes, in 2025, not the purported halcyon days of the 1970s. This is not the picture of a dramatically declining field that requires immediate protection by the federal government.
In addition, tariffs often hurt domestic industries more than they help, in multiple ways. First, the industries that are protected are benefited mildly as compared to the overall destruction tariffs cause. Let’s use the example of steel production, as it is a common sector chosen by tariff proponents to make their case. There are relatively few jobs in steel production in America, even if the industry was powerful and significant, as modern production processes are more efficient and the production of steel is not a comparative advantage of the United States. The wages of those workers may indeed go up slightly as a result of the stifling of foreign competition. But there are far more workers in sectors where steel is a key input, from construction to advanced manufacturing; they will be harmed significantly by the same tariffs, as their costs will rise and their hours or jobs cut as a result. Economists at the Tax Foundation estimate that the current round of tariffs could cost over 300,000 net jobs, before accounting for retaliatory duties. The tariffs imposed during the first Trump administration and continued under Biden, which were less severe and universal than these, cost 142,000 net jobs.
Furthermore, tariffs generally protect non-competitive domestic industries from their foreign rivals, but in the process incentivize fossilization of the business. Protected industries do not innovate to catch up to competitors or overtake them, but sit comfortably and inefficiently behind a wall of government subvention. It also keeps firms afloat that would otherwise be bankrupted by better rivals or failed management practices, making the industry as a whole less dynamic and more stagnant. Capitalism works best when it is in the mode of, as Joseph Schumpeter would label it, creative destruction. Cannibalization of poor-performing firms leads to growth in the medium and long terms, as it forces adaptation and agility in dealing with the changes inherent in the business cycle. Tariffs serve a purpose in shielding nascent industries from foreign competition in developing countries, but they are rarely fit for purpose outside of that use case. America is not a developing nation; we should not ape their economic policies.
The worst part of these two arguments – that tariffs can generate massive revenue and also act as protection for key industries – is that they are mutually exclusive. If tariffs are meant to generate revenue, they must be low enough to not significantly impact the number of imports, but if tariffs are meant to protect industry, they need to be high enough to stifle imports. That makes the protection and revenue arguments incompatible. If one is in play, then the other necessarily is not. Still, that has not stopped people from switching between them at the drop of a hat or, better yet, arguing them both at the same time.
Another argument that also happens to be antithetical to the two described above (funny how that keeps happening) is the one being proffered most frequently by folks who want to ascribe the best possible ideas to the Trump administration: the negotiating tactic claim. These Trump acolytes argue that the president is playing a negotiating game in which he is threatening and levying tariffs to force other countries that are “taking advantage of us” to cut their own tariff rates and engage in freer and fairer trade practices. These commentators fit every Trump move into this paradigm, seeing him as a master manipulator who always gets what he wants and engages in the Art of the Deal. The mercurial and schizophrenic nature of his policies thus far – putting on tariffs, taking off tariffs, threatening tariffs, making all sorts of arguments for them – is nothing more than the addled mind and flailing policy of a White House without economic mooring. Tariffs don’t even work as a negotiating tactic, as they are incredibly easy to retaliate against and only end up harming the domestic consumer, as we have seen. At the same time, if they are merely a means to a free/fair trade end, you lose all of their purported revenue and protection benefits. None of this makes any logical sense together.
One other rationale stands out: the national security card. The national security rationale, even though it is scantly discussed by the tariff proponents, is at the heart of the whole issue. It is the only reason that President Trump, or any other president for that matter, is able to unilaterally impose tariffs on foreign goods, as the taxation power is reserved for Congress under pretty much every other situation. But Congress delegated some of its historic responsibility to the executive to make key national security decisions when time is limited and speed is of the essence. These laws are the basis for the Trump administration’s actions, but they are being stretched beyond the bounds of reasonability. There simply is no national security threat from Canada that justifies the tariff choices the White House has made, especially when they spend half of their time arguing that Russia is not itself a threat. Congress should claw back the power it should never have given to the executive and get back to the business of legislating, which is, you know, the whole reason they were elected in the first place. Taxation is the prerogative of Congress under Article I, and this traditional understanding of the power of the purse should be solidified as soon as possible.
There are some Trump backers who are willing to discuss the objective reality that tariffs have been, thus far, incredibly destructive to the American economy, especially the stock market, but they are certainly not the majority. Still, they spin the economic chaos in the most ridiculous fashion, arguing that short-term pain will lead to immense long-term gain, if not a Golden Age in America. This argument has been made by several members of the Trump team, including the Commerce Secretary, the Treasury Secretary, folks on the press team, and the President himself. In the telling of these tariff-lovers, the trade-off of economic uncertainty and stock market volatility is going to lead to the sunlit uplands of radical prosperity in a fully remade American economy, far more internally-focused and manufacturing-based. In short, they argue that, along the lines of President Ronald Reagan and Fed Chairman Paul Volcker, they need to crash the economy in order to save it. But this is not the situation we face now, nor is the supposed medicine at all salutary in effect.
Volcker was appointed Chairman of the Federal Reserve by Jimmy Carter in 1979 – one of the man’s few successes – and worked primarily with his successor, Ronald Reagan. During the early 80s, when faced with massive inflation and major systemic economic problems, Volcker’s targeted shock therapy and Reagan’s deregulation and tax cuts worked in tandem to turn a moribund economy into a roaring one, based on far better footing. Theirs was a well-laid plan grounded in sound economic theory, but the pain it caused among the populace was still politically costly; the GOP fared poorly in the 1982 midterm elections, although by the 1984 election the economy had turned the corner and Reagan won in a landslide. At the end of his second term in office, America was flying high in the economic realm and growing by leaps and bounds. What is happening now is nothing like that. Donald Trump does not have a thought-out plan, based on sound economic theory, to revitalize the American economy. He is flying by the seat of his pants, relying on advisors who clearly have different rationales for the tariff plan and need to deal with the mercurial man in the Oval Office, who may just choose to change policy on a whim because he saw something on TV or social media.
The economic situation Trump inherited was not catastrophic by any means, although it had been far worse earlier in the Biden administration’s term, but it was perceived as such by enough Americans to bring Trump back into office. The focus was on prices and the feeling of relative stagnation in America’s economic engine, both of which are being exacerbated by Trumpian tariffs. And the good parts of the 2024 economy, namely the surging stock market, are being drastically undercut at the same time. Proponents of tariffs argue that only elites are harmed by a market correction, but normal Americans are helped; this is patently false. More than 60% of Americans are invested in the stock market and many others work for publicly-traded corporations that make business decisions based on their ability to raise funds via the market. Most Americans, including those in the vaunted working class, do not support tariffs. We are already seeing this unnecessary and self-inflicted economic chaos put a dent in the president’s popularity, a mere two months into his term.
And the arguments being made on behalf of the president’s schizophrenic policies are simply laughable. Trump himself blamed the stock market drop on “globalists,” which is a funny way to characterize the majority of the American electorate. Lutnick claimed that anyone calling the current situation chaotic – which is perhaps the most understated adjective possible in this instance – is “being silly.” This is unserious garbage. It has no place at the highest echelons of US economic policymaking. Treasury Secretary Scott Bessent has been less outwardly ridiculous in his statements, but even his rationales for this bad policy choice fly in the face of reality. He argues that we need to “re-privatize” the economy, removing government from much of the private sector and drastically cutting federal spending. This is itself a highly persuasive argument for a fiscal conservative and free marketeer like myself. But it isn’t at all what is actually happening. Despite the tough talk of Elon Musk’s DOGE, it has not cut any significant spending in a durable way. Trump has campaigned three times on not touching entitlements at all – and in 2024 ran on making Social Security tax-free. The GOP Congress just passed a spending bill that will keep the massive levels already established by the last administration, all while increasing deficits via tax cuts. This is not “re-privatizing” the economy, nor is it making America more prosperous. It is whitewashing or ignoring huge problems for the sake of political expediency. In essence, it is the exact opposite of what Paul Volcker and Ronald Reagan did 40 years ago.
There is one aspect of the pro-tariff camp that I do agree with, however: the need to economically decouple from China. The Chinese Communist Party is the greatest enemy of America and freedom that we have faced since the end of the Cold War. It is deeply entangled with the Chinese economy, running state-owned corporations, tacitly controlling all economic activity in the country, and ideologically infiltrating all levels of supposedly-private businesses to enforce rigid conformity with the government line. China is our third-largest goods export market and fifth-largest services export market. We import more goods from China than from anywhere else on the planet, a full 16% of our total. This level of trade with an enemy power is dangerous, especially when it includes many products and resources that are important for national security. As we saw during the pandemic, China shut down exports of key medicines and PPE to America, causing shortages and panic. We cannot allow that to continue.
But are these tariffs the solution? Absolutely not.
We can go after China in a plethora of ways that do not just undermine the American consumer without solving the underlying problems. China commits a wide variety of economic sins, from dumping products (selling below cost to drive out competition) to blatantly falsifying data and manipulating its currency. It unfairly subsidizes key industries, engages in highly restrictive practices regarding foreign companies, and leads the world in the crimes of IP theft and industrial espionage and sabotage. You don’t stop this complex and broad strategy through the blunt instrument of tariffs. You need to do much more. That means coordinated legal cases in institutions like the World Trade Organization meant to lay the groundwork for expulsion of China from these bodies. It means passing and enforcing serious sanctions against Chinese companies and industries, on top of the (poorly enforced) ones we currently have levied against them. It means evicting Chinese companies from American capital markets and debanking them in the United States, making it extremely hard to do business here or elsewhere in the West. These are hard choices that will work to decouple America from the Chinese Communist Party, and we should seriously consider them. But if we can’t even ban TikTok, how in the world are we going to do the real work needed to solve the problem?
And that brings us to the other half of the solution here: where that trade goes once we cut off Beijing. Tariff proponents argue that we will bring manufacturing back to America and be largely self-sufficient and not reliant on foreign imports. This is fantasy. For the vast majority of goods, America simply is not the best producer – we have high wages, high regulatory burdens, and lack access to many key raw materials within our borders. We would be much better off buying these goods and materials from other, better-suited nations, but not ones that are our declared adversaries. That is where friendshoring comes into play. Instead of buying electronic goods, minerals, or medicines from China, why not source them from Vietnam, Argentina, or India instead? We don’t need to buy textiles from China, but can buy them from Honduras or Bangladesh. China cannot interdict all of this trade, especially if we focus more on easily accessible nations like those along the Pacific littoral or in our own hemisphere.
And therein lies the problem with Trump’s tariff policies: How in the world are we going to switch our imports from China to other more friendly and accessible nations if we are slapping the same absurd tariffs on them as we are on China? How do tariffs on Canada help us decouple from China? How does alienating our friends help us overcome our mutual enemies? We are destabilizing our core relationships abroad, ones that we will desperately need if we are to truly take the China threat seriously, for no gain whatsoever. Our constant flip-flopping on policy is not only harming the decision-making ability of American businesses and consumers, it is destroying our global credibility, on which our deterrence, credit, and world power rest. Canada and Mexico are our top export markets and our second and third-largest import suppliers. We should want closer trade with them, not diminished trade. They are the key to our ability to successfully and relatively quickly decouple from China, yet Trump is treating them the same as he is Beijing. This is incredibly counterproductive and weakens the entire rationale of the tariffs on China. It also undermines the idea of decoupling, which would be a near-mortal wound in our quest to maintain primacy over our foes.
Free trade often gets a bad rap these days, as both parties seem to have largely embraced the folly of protectionism, but it is the best system we have for growing our economy, delivering widespread prosperity to our citizenry, and prioritizing the individual over powerful special interests. All Americans are made richer by free trade, as it provides them access to an enormous universe of goods and services for the best possible prices. It allows our businesses to adapt to change and remain competitive and innovative, which boosts employment and wages. It removes government from heavy-handed intervention in our daily lives and reduces the tax burden, particularly on the poorest Americans. Individual liberties are protected, while special interests – who are great at lobbying for tariff exemptions for their specific clients and sectors (look at how car manufacturers secured an exemption from Trump’s tariffs) – are marginalized. Bureaucracy, which the MAGA folks claim to hate more than anything else, is increased by the complexity of tariff schedules and restrictive import controls, while free trade drastically limits it.
Our standard of living and per capita income are significantly higher than those of our peer states, other advanced democracies like those of Europe, Canada, and East Asia. Those nations tend to have higher tariff walls than we do (although still not very high either in relative or historical terms), but are worse off. Their homes are smaller, their access to affordable necessities is below ours, they have fewer cars, they pay higher taxes, their economies lack dynamism, and they have lost an important aspect of economic liberty. MAGA tariff-backers love to criticize our European and Canadian friends for everything under the sun. So why would we want to be more like them in this critical respect?
The answer usually revolves around the idea of a trade deficit, presenting that as some sort of economic loss akin to a government budget deficit. Trade deficits have been a Trump bugbear for decades now and were a key talking point during all three of his Oval Office campaigns. He claims that other nations are taking advantage of us and we are losing to them by having a deficit in bilateral trade. This is entirely wrong. Trade deficits simply mean that we import more from a country than we export to them. That is not a good or bad thing, it just is. We still remain one of the world’s top exporters, even if we are its top importer as well. They are not necessarily in tension with one another, especially given the fact that we have a very large domestic market. If anything, we are winning these exchanges. By operating at a trade deficit, we are sending fewer goods than we are accepting, which means we also send additional currency to the foreign nation to make up the balance. This sounds bad, but it is highly beneficial for the American economy and dollar. It locks foreign countries into spending or investing those dollars in the United States, as they are not valid currency elsewhere (conversion still leaves those dollars floating around abroad to be used here eventually). It continues to maintain the American dollar as the global reserve currency, giving us a high degree of leverage over the international financial system, which benefits our economy. And it trades paper money backed only by the faith that people put in the federal government for physical, tangible goods. That sounds like a pretty great trade to me!
Despite the enormous weight of the evidence marshaled above, the tariff-lovers are more than happy to make increasingly ludicrous arguments about the utopian future these import taxes will deliver America into. For the best possible example of this, I give you Batya Ungar-Sargon, a progressive populist commentator who has gone full MAGA without actually changing her beliefs (which seems like a problem for an administration that claims to be conservative). She argues in this clip that ‘elites’ just need to get over their whining about how the economy is tanking because Donald Trump is teaching them “how to build an economy based on love of country and love of your neighbor.” Besides the weird culty vibes coming from this statement, it just is not remotely true to life.
This is not 4D chess. It isn’t checkers. It’s not even Go Fish. It’s 52-Card Pickup; utter chaos without any plan or redeeming quality whatsoever, solely meant to get back to the state before the self-imposed chaos. There is no plan here. There is no stable rationale here. There is no net benefit here, even to the people who are supposedly going to be helped. Tariffs will not balance the budget. They will not result in major negotiating wins for America abroad. They will not make us stronger. And they will not ameliorate the economic conditions of the men and women who cast their vote in November for Donald Trump to do just that. Things are going to get worse long before they get better, as Trump has repeatedly said he would refuse to back down from tariffs and has thus far only increased them. The logic of retaliatory tariffs suggests that these new taxes on American citizens will rise much higher before they fall. If we back down from this insane policy now – as we should – it will still damage our international credibility and harm businesses and consumers in America. But it is better than the alternative, which is deliberately impoverishing ourselves for no particular reason.
As Joshua, the AI supercomputer in the 1983 film War Games, famously said about global thermonuclear war: “A strange game. The only winning move is not to play.” That adage certainly applies to tariffs as well. It would be good if our leaders came to understand that.