Introduction
The recent imposition of reciprocal tariffs by the United States has been criticized by opponents of President Trump, who argue that these tariffs pose a threat to increasing prices. However, critics have overlooked Trump’s two-month lecture on the potential misuse of a powerful political tool. This article aims to clarify these misconceptions and provide context on the impact of tariffs.
The Democratic Perspective
Many Democrats seem to have forgotten that President Joe Biden expanded the size and scope of Trump’s tariffs on Chinese imports. Although Biden increased tariffs in 2024, inflation began to decrease, mirroring the stability after Trump imposed tariffs on Chinese imports worth $350 billion starting in 2018.
Biden’s Industrial Policies
The combination of tariffs and Biden’s industrial policies to boost demand for domestic products and encourage investment has led to a manufacturing boom that Trump continues to promise. In 2023, the United States recorded its highest factory investment rate in 30 years. Ironically, Democratic presidential candidate Kamala Harris criticized “Trump’s tariffs” in a failed campaign that lost the majority of working-class voters.
The Misconceptions
Labeling Tariffs as “Trumpian”
It is a mistake to label tariffs as Trump’s. If you support a border carbon tax to combat climate change or the enforcement of labor standards in trade agreements, you support tariffs. Tariffs are popular, with 56% of Americans favoring increased tariffs on China just before the U.S. presidential election, including 58% of voters without a college degree in Michigan, Wisconsin, and Ohio.
Economic Damage
The economic damage caused by Trump since taking office in January is not due to tariffs themselves but rather the economic uncertainty caused by constant tariff changes and a focus on non-trade goals, such as migration and fentanyl trafficking, and countries like Canada (with whom the U.S. has a non-oil trade surplus).
The Bretton Woods System and Its Incompatibility
Key elements of the post-war Bretton Woods system are incompatible with current realities, such as fixed exchange rates. The U.S. dollar, as the world’s primary reserve currency, does not depreciate to correct trade imbalances. A chronically overvalued dollar means imported goods denominated in other currencies outcompete even the most efficient U.S. producers.
Persistent Trade Deficits
This has resulted in a persistent global trade deficit in the U.S. since 1975, including a record $918.4 billion in 2024. As economic theory predicts, this has led to deindustrialization and increased economic inequality. The NAFTA and the establishment of the World Trade Organization (WTO) in the mid-1990s, along with China’s WTO admission in 2001, turned the gradual decline of U.S. manufacturing capacity since the early 1980s into a crisis. Since then, the U.S. has lost over 90,000 factories and 5 million net manufacturing jobs, now producing mainly dollar-denominated assets bought by foreigners with the billions they earn selling their products to Americans. This has been highly profitable for the financialized sectors of the U.S. economy and wealthy investors, but a disaster for many.
The Way Forward
The U.S. can create good jobs and restore security for 62% of American workers without a college degree by driving domestic production of essential health and security products. This, along with diversifying U.S. import sources, can strengthen national resilience and security.
Tariffs as Part of the Solution
The problem lies with imports, and the U.S. cannot achieve balance by exporting alone. While the U.S. has, by far, the largest chronic trade deficit, 66 countries share this situation, while 19 countries, including China, Germany, Japan, South Korea, and Taiwan, accumulate chronic trade surpluses through mercantilist policies to boost their manufacturing capacity and exports. Decades of anti-dumping cases, subsidies, and WTO compliance have not stopped this.
Collective Action
If this block of countries agreed to increase tariffs on surplus countries, not only would trade be rebalanced, but workers in these countries would also benefit as consumers of goods no longer flooding export markets.
Adherence to Labor and Environmental Standards
If this bloc also agreed to act in accordance with the fundamental norms of the International Labour Organization and major multilateral environmental treaties, even more people could benefit from trade.
Conclusion
Tariffs are not the panacea Trump claims, but they don’t always increase consumer prices. Tariffs are applied to the wholesale price of imported goods, and the transfer of these costs to consumers is a business decision. A National Bureau of Economic Research study showed minimal retail price increases following Trump’s 2018 China tariffs, as companies absorbed the cost within their profit margins.
However, some businesses use tariffs as an excuse to increase margins. For example, while Trump’s first-term tariffs supposedly raised washing machine and dryer prices, no tariffs were applied to dryers, and U.S. retailers increased washing machine prices in Canada, where no tariffs were applied.
To reap the benefits of trade, it’s crucial for the U.S. to reduce its substantial chronic trade deficit. Trump’s focus on reciprocal tariffs rather than trade balance suggests an intention not to strategically use them to achieve this goal. Democrats should stop dismissing a political tool they themselves adopted with Biden.
The question Democrats should focus on is whether Trump’s tariffs benefit or harm American workers.
The Author
Lori Wallach is the Director of the Rethink Trade program at the U.S. Public Interest Research Group.
Copyright: Project Syndicate, 1995 – 2025
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