Equilibrium

By Nathan Balis

As former President Donald Trump prepares to re-enter the White House in less than three months, United States trade policy appears poised for a dramatic shift toward protectionism. His proposals to set a 60% tariff on Chinese goods and a 10% to 20% blanket tariff on all imports promise to have severe economic consequences.

The complex, long-term effects of tariffs, compounded by the political rhetoric surrounding them, have fueled controversy. No matter how politically clouded the issue of tariffs has become, data from Trump’s 2018 tariffs – maintained by President Biden – shows they have had net negative effects on the domestic economy. 

While Trump’s tariffs may have provided short-term employment boosts in select industries, the long-term economic costs are steep: an estimated 142,000 jobs lost in downstream sectors, $625 per household in higher costs, a 0.1% reduction in capital stock, and a 0.2% hit to GDP. Combined, these policies amount to an $80 billion annual tax on Americans according to the Tax Foundation, a nonpartisan think tank. 

President-elect Trump’s plans for his second term are projected be more extreme, including hiking taxes by another $524 billion annually and shrinking employment by 684,000 full-time equivalent jobs. These values don’t reflect the total costs associated with retaliatory measures and a global trade war.

Indeed, tariffs are hard to justify on economic grounds alone. They must offer clear strategic value. They may, however, be warranted when national security is at risk, as outlined in Section 232 of the Trade Expansion Act of 1962.

For instance, tariffs may be justified to reshore critical industries vital to U.S. defense and technology. The pandemic’s disruption of global supply chains has highlighted the need to reduce reliance on adversarial nations.

However, imposing harsh tariffs on key U.S. allies, such as South Korea, Japan, Germany, and France, risks undermining our nation’s alliances, which are our most vital foreign policy asset. This is of ever-increasing relevance in a world already destabilized by ongoing conflicts in Ukraine and the Middle East, as well as a growing global challenge to U.S. power and democracy posed by authoritarian regimes.

Rather than relying on broad tariffs, United States trade policy should prioritize reshoring critical industries – such as semiconductor manufacturing – not only to the U.S. mainland, but also to allied nations with established infrastructure. This approach makes economic sense. For instance, South Korea, a key ally with a strong semiconductor industry, can absorb production more efficiently than newly built factories in the U.S. While the CHIPS and Science Act is a positive step, it cannot overcome the U.S. shortage of skilled labor needed to scale up advanced chip production. More importantly, reshoring industries to close allies strengthens U.S. alliances by deepening economic ties. The relocation of key supply chains to trusted partners offers the U.S. a more sustainable solution than unilateral tariffs, which risk isolating essential allies.

With global economic and geopolitical challenges mounting, U.S. trade policy will define its resilience. While tariffs carry economic costs, when applied strategically, they can enhance national security by protecting key supply chains and reinforcing alliances. The current steel tariffs are a step forward but should be fine-tuned through closer collaboration with Japan, a key U.S. ally and the world’s third-largest steel producer. By contrast, high tariffs on washing machines lack economic justification. In a world where alliances are as vital to security as domestic economic strength, the U.S. must craft trade policies with caution and foresight.