RALEIGH — During his 2024 campaign, Donald Trump promised sky-high tariffs on products from China and across-the-board taxes on imports from other countries. Now president-elect, Trump has already pitched the idea of levying 25% taxes on Mexican and Canadian imports to the U.S., blaming those governments for failing to arrest the cross-border flow of illicit drugs and illegal immigrants.
Many of his defenders — including his designee for treasury secretary, South Carolinian Scott Bessent — argue that Trump is really a free-trader at heart, that his threatened taxes on imports merely represent a tactic to draw reluctant trading partners to the negotiating table.
I sincerely hope they’re right — because our state has a lot to lose if the new administration’s tax policies provoke a trade war. Many of our fellow North Carolinians work in sectors such as agriculture, life sciences, information technology, textiles, and finance that export goods and services around the world. When other countries retaliate by raising import taxes or other barriers, our folks get clobbered.
That the once and future president’s policy would raise consumer prices is not in dispute. That’s what tariffs are for. Taxing imports makes them less appealing to domestic purchasers, giving domestic producers a chance to compete for their business at the higher prices.
For protectionists, that’s the end of the story. They believe Americans are better off paying higher prices over time because Americans will also earn higher wages from the domestic producers enjoying higher domestic sales. Their proposition is at best debatable — workers “protected” in this way form a pretty small subset of American consumers as a whole, for example — but at least it is clearly stated and testable.
The alternative view, offered by Bessent and others, is that threatening to raise import taxes will reduce rather than increase consumer prices in the long run, by forcing other countries to lower trade barriers as a condition for America lowering its barriers. This proposition is harder to evaluate empirically, in part because the implied gap in time between tariffs raised and trade deals negotiated could be months, years, or even decades.
Still, I submit the best-available evidence suggests neither defense of import taxes is sound. Cato Institute scholar Scott Lincicome and his peers recently examined more than a dozen empirical studies of the first Trump administration’s trade policies.
“Estimates of the pain vary depending on what aspect of the Trump tariffs was studied,” they wrote, “but it is clear that Americans faced significant losses from the tariffs (and inevitable foreign retaliation), including higher tax burdens and prices, loss in wages and employment, reduced consumption, decreased investment, a decline in exports, and overall aggregate welfare.”
Consider a study by the Congressional Budget Office of tariffs imposed by the Trump administration between 2018 and 2020. CBO found that they not only raised consumer prices (of course they did) but also lowered industrial output, partly because of the higher prices domestic producers were compelled to pay for parts and raw materials imported from trading partners. The net effect was to impose an average cost of $1,277 per American household.
Similarly, a study published in the American Economic Review found that Trump’s taxes on imported washing machines forced Americans to pay some $1.5 billion more a year for washers and dryers (given how often the two are sold in tandem).
Historical examples of successful protectionism are also far less common than proponents claim. A new National Bureau of Economic Research paper by economists from the University of California-Davis and Britain’s University of Sussex took a close look at tariff rates and the performance of American manufacturing from 1870 to 1909.
They found that import taxes lowered American productivity and tended to reflect successful lobbying by special-interest groups. “The era’s high tariffs are unlikely to have helped the U.S. become a globally competitive manufacturer,” the authors concluded.
The new administration appears to be betting on a different outcome this time. For North Carolina, the stakes couldn’t be higher.
John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy with American history (FolkloreCycle.com).
