Tariffs are intended to shield U.S. businesses by increasing the price of foreign goods, thereby reducing competition from abroad. Critics are taking aim at their inflationary effects and general impact on the economy. The Trump administration did exactly this on a massive scale using these tariffs. Today, they continue to affect a surprising 80 percent of U.S. imports, raising the ire of economists and policymakers alike.
From 2018 to 2019, the Trump administration implemented tariffs on roughly $380 billion in imports. According to the Tax Foundation, these tariffs now affect more than $1 trillion in goods. This number may increase to $1.4 trillion. That of course will occur if the temporary exemptions for certain Canadian and Mexican products run out in early April.
This is a huge deal, because tariffs have a nasty habit of raising prices for consumers. Tariffs, for instance, could raise auto prices between $4,000 and $12,500 based on what type of vehicle you were purchasing. A February analysis by economists at the Peterson Institute for International Economics suggests that the typical U.S. household may pay about $1,200 annually due to tariffs on goods from Canada, China, and Mexico.
Tariffs raise costs for American businesses. Instead of eating these losses, most companies decide to shift the burden to consumers by increasing prices. As a result, Americans pay, in direct and indirect ways, the costs of tariffs that U.S. businesses are forced to pass onto consumers.
While tariffs do in fact create jobs in protected U.S. industries, because of retaliation from other countries, as well as the increased production costs for many industries, they tend to lead to a net loss of jobs across the economy. The Trump administration's actions included raising levies on imports from China and various products from Canada and Mexico.
Quite recently, the Federal Reserve has recognized the inflationary impacts of such trade policies, as well. The U.S. central bank just increased its 2025 inflation projection. They credited this decline to the immediate effects of a trade war started by the Trump administration. On Wednesday, the Federal Reserve raised its 2025 inflation prediction by 0.3 percentage points. The new neutral rate is projected to be just 2.8%, they said in their summary of economic projections.
These tariffs, as Fed Chair Jerome Powell already admitted, will indeed increase the U.S. rate of inflation — by 2025.
Tariffs are simply inflationary, despite what [President] Donald Trump may tell people. - Bradley Saunders, a North America economist at Capital Economics.
Economists, such as Lydia Cox, an assistant professor of economics at the University of Wisconsin-Madison, analyze the impacts of international trade. What they underscore is the vulnerabilities that protectionist measures can open us up to.
By trying to protect certain industries, you can actually make other industries more vulnerable. - Lydia Cox, an assistant professor of economics at the University of Wisconsin-Madison who studies international trade.
The Biden administration has mostly left all these tariffs as is, even those imposed by its predecessor. This continuation highlights the often paradoxical political and economic factors at play with respect to trade policy.
