I’ve been reading up on the tariffs that were imposed during the Trump administration and I keep seeing mixed reviews about their effectiveness. On one hand, they seemed to protect certain domestic industries by making imported goods more expensive; on the other hand, there’s a lot of talk about higher prices for consumers and retaliatory measures from trading partners.
The thing is, these tariffs aren’t exactly popular among everyone. If we were to look back 1 year out, 2 years out, and even a few more years down the line, how will we actually know if this was a good move?
Surely there are some metrics or outcomes that can help us evaluate their success or failure. I guess it’s not as simple as checking stock market performance alone, although that’s probably part of it, right?
Is it primarily about looking at changes in trade balances with countries like China, or do we need to consider the broader economic impacts, such as job growth within certain industries? And how much weight should be given to the political ramifications, like strengthened relationships (or tensions) with trading partners?
I’d love to hear your thoughts on what metrics or indicators would help determine whether these tariffs were indeed a beneficial strategy. Thanks in advance for any insights!
Ok, another answer closer to the ground. 2 goals are often invoked. Reduce the trade deficit and increase domestic manufacturing.
… means that more goods (and services) come into the US from the rest of the world than the US delivers in return.
Reducing the trade deficit makes Americans poorer by design. There will be fewer goods available for Americans, either because they have to give up more to the rest of the world, or because they don’t come into the country in the first place.
The rest of the world is willing to loan money to people, companies, and governments in the US. It is also eager to invest in the country, because it really was a good place in which to do business. Look at the current big thing: AI. You can’t really do that in the EU, and investing in China has its own risks. Trump may actually reduce the deficit by making the US more of a South American style banana republic.
One manufactures stuff outside the US and transports it there because it is more efficient. Americans can be more profitably employed in different areas. Moving more manufacturing to the US should be expected to leave the average American poorer. It should not be expected, in isolation, to reduce the trade deficit as it creates new investment opportunities that potentially attract foreign money, increasing the deficit.
However, while Americans would be left financially poorer, there may be benefits not captured by conventional econometrics. Maybe manufacturing is more emotionally satisfying in a way that is not captured by only looking at the wages. Who knows?
Unfortunately, getting to that state will be brutal. Millions of people will have to find and learn new jobs. That is what happened when manufacturing was off-shored. Reversing that will have the same cost. Some economists have come to believe that the psychological cost of such structural changes has been vastly underestimated, and that is why trade agreements are so unpopular. The benefits from free trade may not outweigh the psychological pain and disruption of communities. Reversing free trade will have similar effects, that are likewise virtually impossible to measure.
I think the most objective benefit would arise if a war happened that disrupted trade. For example, if Trump invaded Canada and Greenland, this would probably lead to the US being embargoed. Then it would appear good to have already built manufacturing capacity in the US while it was still easy. You need physical goods to fight wars, after all.