Last week, President-elect Donald Trump announced his intention to implement new tariffs on imports from Canada, Mexico, and China, signaling a shift towards protectionist trade policies.
Research into previous tariffs, specifically from the 2018–19 U.S.-China trade war, provides insight into potential outcomes of similar actions. Analysts suggest that while the goal of such tariffs is to protect domestic industries, the results may not align with these intentions.
Historically, tariffs have not resulted in reduced costs for imports. In fact, during the prior trade conflict with China, American consumers faced increased prices for specific goods. This counters one of the primary ambitions of imposing import tariffs – to make domestic products more competitive in price.
Moreover, the return of manufacturing jobs to the U.S. was not observed during the last trade war. Despite the imposition of tariffs intended to boost domestic employment, the expected increase in manufacturing opportunities failed to materialize.
Another concern is the impact of retaliatory tariffs from trade partners. During the last U.S.-China trade confrontation, sectors that were targeted by such countermeasures experienced significant challenges, affecting their competitiveness and profitability.
Looking forward, companies have employed strategies like ‘friend-shoring’ to mitigate potential impacts of a new trade war, which involves shifting supply chains to allied countries. However, such measures may not sufficiently shield businesses from new tariffs, particularly if they involve other major trade partners like Mexico and Canada.
The proposed tariffs by President-elect Trump could potentially reshape the U.S. economy in unpredictable ways. While intended to protect U.S. industries, historical data suggests these measures may yield mixed results, including higher consumer prices and minimal job growth.
Source: HBR
