Donald Townsend III | 11.04.2025
Tariffs and Trade Wars: The Cost of Protectionism in the Global Economy
With the Trump administration has come many policy changes that have affected markets across the globe. And as the news fills with reports of trade wars after trade wars, it is important to look at how these protectionist measures actually affect the global economy, and assess how effective protectionism is in actually protecting an economy.
The biggest and most well-known protectionist measure brought by the Trump administration were the onslaught of tariffs implemented worldwide. Although at first glance they might seem useful to protect a nation’s interest, their actual impacts can be questionable. Let’s make a comparison between the theoretical workings of tariffs versus their actual effects.
Tariffs are seen in economics as a tool for protecting home industries from overseas competition. By levying taxes on imported goods, governments essentially raise the cost of these imports, making comparable domestically produced goods more attractive to buyers. For developing or recovering economies interested in establishing "infant industries"—industries with potential but low global competitiveness—tariffs are especially helpful. In this regard, tariffs provide these sectors the space they need to develop, boost their capacity, generate employment, and finally engage in worldwide competition. Tariffs are also meant to increase inward investment, reduce trade deficits, and create government revenue by limiting too high imports without directly taxing home industry. Under ideal circumstances, tariffs are short-term, precisely calibrated, offering immediate protection as well as laying a foundation for sustainable competitiveness and independence.
Actually, though, and especially for consumers, tariffs produce economic distortions more than any claimed benefit. Most especially in economies heavily dependent on imports for either manufactured goods, food, or raw materials, tariffs have a tendency to introduce across-the-board price increases rather than merely reducing consumption toward domestic goods. Companies who import inputs—from microchips to auto parts—are faced with higher input costs, which are then passed on to consumers as more costly final goods. One of the consequences of tariffs as they flow through supply chains is higher prices; another is less availability and poorer quality of goods. Particularly suffering are low- and middle-income homes whose consumption patterns are less erratic and who devote more of their income to basic goods.
Moreover, the hope that home producers will pick up the slack from imports typically is unrealistic. Without the discipline of foreign competition, domestic companies will increase their own prices, reduce innovation, or become reliant on perpetual government assistance. Tariffs also can lead trading partners to impose retaliatory tariffs, reducing export demand and resulting in job losses in industries never even intended as targets of the original tariff policy — agriculture or manufacturing, say. An example is the U.S.-China trade war, under which American consumers were charged more for everything from washing machines to smartphones, and farmers lost markets for their produce due to Chinese retaliatory tariffs. Far from promoting economic resilience, tariffs actually bring about inflation, inefficiency, and a narrowing of consumer choice — undermining the very goals they claim to pursue.
Beyond the headlines-grabbing tariffs on exports like soybeans or pork, American farmers suffered especially from growing expenses on required imports for daily operations. Most of these inputs, which range from machinery parts and steel to fertilizers, pesticides, and herbicides, are either straight imported or depend on imported raw materials. For example, tariffs on Chinese and worldwide steel affected the cost of farm equipment including tractors, irrigation systems, and storage silos—all of which mostly rely on metal components. Simultaneously, many chemical inputs used to increase crop yields—including potash, glyphosate, and urea-based fertilizers—became much more costly as tariff restrictions were placed on suppliers including China and Canada. These added expenses further tightened already narrow profit margins, particularly for small and medium-scale producers, compelling many to reduce production levels, postpone equipment modernization, or incur additional debt. These increases tightened slender profit margins, especially among small- and medium-scale farmers, compelling many to reduce production levels, delay machinery replacement, or take out loans.
Although tariffs have been often praised as a patriotic shield for an American industry, their real impacts are another story—one marked by rising consumer costs, supply chain interruptions, and grand strategic economic mistakes. Particularly the narrative of the late 2010s and early 2020s trade wars, the American experience shows how such policies can have negative consequences on a general level. Tariffs eventually cost consumers, raised prices for basic inputs, and threatened export-dependent businesses rather than resuscitating home industry or shielding farm producers. The effects have resonated across the economy, showing up as higher consumer item costs and adding to financial stress on farms.
Most significantly, tariffs did not provide a long-term competitive advantage. Sheltered industries did not migrate to the levels of advancement and expansion promised by policymakers; rather, many industries became increasingly reliant on government assistance or lost their competitive advantage to international rivals. Concurrently, key trade alliances were strained, and American manufacturers were excluded from markets they dominated. In this instance, tariffs look more like a reflexive political action rather than a thoughtful defense of national interests, and one that values short-term political appearances over long-term strength. If the objective is to safeguard the United States' economic future, the way forward is not isolation but rather investment, innovation, and open, rules-based trade.
The biggest and most well-known protectionist measure brought by the Trump administration were the onslaught of tariffs implemented worldwide. Although at first glance they might seem useful to protect a nation’s interest, their actual impacts can be questionable. Let’s make a comparison between the theoretical workings of tariffs versus their actual effects.
Tariffs are seen in economics as a tool for protecting home industries from overseas competition. By levying taxes on imported goods, governments essentially raise the cost of these imports, making comparable domestically produced goods more attractive to buyers. For developing or recovering economies interested in establishing "infant industries"—industries with potential but low global competitiveness—tariffs are especially helpful. In this regard, tariffs provide these sectors the space they need to develop, boost their capacity, generate employment, and finally engage in worldwide competition. Tariffs are also meant to increase inward investment, reduce trade deficits, and create government revenue by limiting too high imports without directly taxing home industry. Under ideal circumstances, tariffs are short-term, precisely calibrated, offering immediate protection as well as laying a foundation for sustainable competitiveness and independence.
Actually, though, and especially for consumers, tariffs produce economic distortions more than any claimed benefit. Most especially in economies heavily dependent on imports for either manufactured goods, food, or raw materials, tariffs have a tendency to introduce across-the-board price increases rather than merely reducing consumption toward domestic goods. Companies who import inputs—from microchips to auto parts—are faced with higher input costs, which are then passed on to consumers as more costly final goods. One of the consequences of tariffs as they flow through supply chains is higher prices; another is less availability and poorer quality of goods. Particularly suffering are low- and middle-income homes whose consumption patterns are less erratic and who devote more of their income to basic goods.
Moreover, the hope that home producers will pick up the slack from imports typically is unrealistic. Without the discipline of foreign competition, domestic companies will increase their own prices, reduce innovation, or become reliant on perpetual government assistance. Tariffs also can lead trading partners to impose retaliatory tariffs, reducing export demand and resulting in job losses in industries never even intended as targets of the original tariff policy — agriculture or manufacturing, say. An example is the U.S.-China trade war, under which American consumers were charged more for everything from washing machines to smartphones, and farmers lost markets for their produce due to Chinese retaliatory tariffs. Far from promoting economic resilience, tariffs actually bring about inflation, inefficiency, and a narrowing of consumer choice — undermining the very goals they claim to pursue.
Beyond the headlines-grabbing tariffs on exports like soybeans or pork, American farmers suffered especially from growing expenses on required imports for daily operations. Most of these inputs, which range from machinery parts and steel to fertilizers, pesticides, and herbicides, are either straight imported or depend on imported raw materials. For example, tariffs on Chinese and worldwide steel affected the cost of farm equipment including tractors, irrigation systems, and storage silos—all of which mostly rely on metal components. Simultaneously, many chemical inputs used to increase crop yields—including potash, glyphosate, and urea-based fertilizers—became much more costly as tariff restrictions were placed on suppliers including China and Canada. These added expenses further tightened already narrow profit margins, particularly for small and medium-scale producers, compelling many to reduce production levels, postpone equipment modernization, or incur additional debt. These increases tightened slender profit margins, especially among small- and medium-scale farmers, compelling many to reduce production levels, delay machinery replacement, or take out loans.
Although tariffs have been often praised as a patriotic shield for an American industry, their real impacts are another story—one marked by rising consumer costs, supply chain interruptions, and grand strategic economic mistakes. Particularly the narrative of the late 2010s and early 2020s trade wars, the American experience shows how such policies can have negative consequences on a general level. Tariffs eventually cost consumers, raised prices for basic inputs, and threatened export-dependent businesses rather than resuscitating home industry or shielding farm producers. The effects have resonated across the economy, showing up as higher consumer item costs and adding to financial stress on farms.
Most significantly, tariffs did not provide a long-term competitive advantage. Sheltered industries did not migrate to the levels of advancement and expansion promised by policymakers; rather, many industries became increasingly reliant on government assistance or lost their competitive advantage to international rivals. Concurrently, key trade alliances were strained, and American manufacturers were excluded from markets they dominated. In this instance, tariffs look more like a reflexive political action rather than a thoughtful defense of national interests, and one that values short-term political appearances over long-term strength. If the objective is to safeguard the United States' economic future, the way forward is not isolation but rather investment, innovation, and open, rules-based trade.
