Authors: Samantha Li, Aidan Dauk, Bertha Liao, Matteo Dalesandro, Evelyn Lee, and Jelina Li
Topic: Tariffs
Committee: Government/Law
Since its recent re-election, the Trump administration has been making headlines for its activity in foreign policy, imposing protectionist policies, specifically, tariffs. Tariffs are principally taxes placed upon goods and services coming into a country with an effect proportional to the value of the good or service. Historically, tariffs levied on imports were vital sources of revenue; however, today they remain insignificant to the federal governments of developed countries and are utilized primarily as a means to promote domestic markets, push foreign policy goals, and as leverage in trade negotiations. In the United States, the Constitution originally grants Congress the authority to manage foreign commerce and levy tariffs. Congress has since passed laws providing the President with this power under specific circumstances. Over the past century, the United States has continued efforts to reduce many tariffs, especially with its involvement in the World Trade Organization, but other countries have not always followed suit. Since President Trump first took office in 2017, his administration openly disapproved of the low-tariff approach and used Presidential authority to increase them. Tariffs comprise a central component of Trump’s economic strategy and goal of protecting domestic employment and manufacturing while raising tax revenue and growing the economy. In recent news, the threat of Trump tariffs and retaliation has caused global stock markets to plummet and United States consumers to panic, anticipating their prompt effects on prices, while the long term effects remain uncertain.
Goals on Supporting Domestic Firms
Tariffs are a policy tool to strengthen U.S. industries by reducing import competition, protecting critical sectors, and funding long-term economic development. The 2025 Trade Policy Agenda underscores these objectives, but businesses face both benefits and challenges as they adapt to changing costs and supply chain dynamics.
By raising the cost of foreign goods, tariffs encourage domestic manufacturing, particularly in industries where import reliance has historically threatened competitiveness. After the reinstatement of a 25% tariff on steel and aluminum, U.S. steelmakers, including Nucor, raised prices multiple times in early 2025, with hot rolled coil prices surging 12% to $839 per short ton within two weeks, while some buyers struggled to secure quotes as suppliers canceled or delayed orders (Reuters, 2025). Although these tariffs have created breathing room for U.S. metal producers, industries that rely on imported raw materials, such as automotive, construction, and heavy machinery manufacturing, are now facing severe cost pressures. A Bain & Co. survey found that 40% of U.S. manufacturing executives anticipate double-digit cost increases, leading 80% of firms to adjust financial plans (Reuters, 2025). Some businesses, particularly small manufacturers, are squeezed between rising input costs and customers’ resistance to price hikes. For example, HCC, a farm equipment parts producer, reported difficulties in obtaining price quotes from suppliers, while its customers resisted absorbing the increased costs.
In addition to shielding domestic manufacturers, tariffs have become a strategic lever in reshaping U.S. energy and technology supply chains, particularly those crucial to national security. By increasing the cost of imported materials, tariffs encourage domestic production of essential components such as steel, aluminum, and vital minerals used in clean energy technologies. The Department of Energy (DOE) has actively worked to enhance domestic manufacturing capabilities through initiatives like the Advanced Materials & Manufacturing Technologies Office (AMMTO) and the Office of Manufacturing and Energy Supply Chains (MESC), which provide tax credits, loans, and grants to support U.S.-based energy production (DOE, 2025). However, tariffs also introduce challenges. While duties on foreign aluminum and steel support domestic producers, they simultaneously raise the costs of renewable energy projects that depend on those materials, including wind turbines and solar panels. Similarly, retaliatory tariffs, such as Canada’s response to U.S. aluminum tariffs, have disrupted exports of American agricultural and industrial goods, demonstrating the geopolitical risks of protectionist trade policies. As the U.S. seeks to strengthen its clean energy manufacturing base, policymakers must balance trade protections with the need for stable supply chains, ensuring that tariffs do not undermine broader energy and industrial goals.
Tariffs not only reshape domestic industries but also trigger international trade retaliation, influencing global supply chains and market dynamics. For example, when the U.S. imposed tariffs ranging from 10% to 15% on $21 billion of agricultural goods, China responded by seeking alternative suppliers. This shift is expected to benefit Brazilian exporters, European pork suppliers, and Australia’s wheat industry, reflecting a broader trend to reduce reliance on American agriculture. Such retaliatory measures are standard, as seen with China’s tariffs on U.S. goods in response to U.S. steel tariffs (MSN News).
Moreover, the U.S. trade deficit recently experienced a notable contraction, attributed to a significant decline in imports—the most substantial since late 2022. This reduction positions trade to potentially contribute positively to economic growth in the upcoming quarter. However, businesses remain cautious, with concerns over potential tariff implementations influencing future import patterns and economic dynamics. These trade tensions and tariff-induced disruptions reveal the complexity of managing supply chains in a globally interconnected economy (Supply Chain Report).
Trump Administration’s Motives on Tariffs
Tariffs are just a tool for Trump to win. Trump said, ‘Trade wars are good, and easy to win. Undoubtedly, Trump’s tariff war aims to implement tariff deficits. Meanwhile, there are different motives that Trump has behind the scenes. This tariff war is more than implementing tariff deficits. While on the surface, his tariff wars appear focused on reducing trade deficits, deeper motives suggest a broader agenda: strengthening geopolitical leverage, asserting control, and fulfilling campaign promises through economic conflicts. Looking over his previous term depicts how he needs to gain his power over the world to initiate his promises.
A closer look at Trump’s first term (2017-2021 reveals how he used tariffs to negotiate from a position of strength. Trump imposed tariffs on up to $60 billion of Chinese imports, targeting approximately $50 billion worth of products with a 25% tariff. The official justification centered on intellectual property theft, forced technology transfer, and structural trade imbalances. According to the White House government fact sheet, “In response to China’s intellectual property theft, forced technology transfer, and other unreasonable behavior, President Trump acted with conviction to impose tariffs on imports from China, using that leverage to reach a historical bilateral economic agreement.”
Indeed, these aggressive moves yielded partial successes. Trump won agreement over intellectual property from China by imposing tariffs. Another key initiative was the steel and aluminum tariffs, where Trump imposed 25% tariffs on steel and 10% duties respectively under Section 232 of the Trade Expansion Act, citing national security concerns. By mid-2019, these tariffs were lifted for Canadian and Mexican imports, which accounted for a significant portion of U.S. steel and aluminum imports. As one of the results, Hyundai in South Korea decided to build a steel plant in the United States. This could lead to help unemployment and investments from foreign countries into the U.S industry while improving the U.S. trade balance. As Trump gained much power and deals from the previous tariff war, people expect that he has different motives behind his current tariff war.
Recently, Trump has already announced tariff moves towards U.S allies, Mexico, and Canada to stop illegal immigration, poisonous fentanyl, and other drugs. According to the Fact Sheet of the White House, they addressed this as an emergency situation under the Emergency Economic Powers Act (IEEPA).
According to Tax Foundation research about the Trump Tariff by York and Durante, beyond drugs, Trump is also trying to combat illegal immigration and address trade imbalances. As a whole, Trump is expecting the safety and security of the American people and the sanctity of our national borders. Trump’s tariffs have raised public concern, as they were never discussed through the International Trade Administration, and have been a significant cause of plunging stock markets.
Effects on American Consumers and Producers
Trump’s tariffs are a tax that the U.S. government puts on products imported from other countries. President Trump aims to use these tariffs in an effort to help American companies compete with businesses abroad that often sell items at low prices. The Trump administration’s main goal was to make foreign products cost more so people would choose American-made products instead. This policy was put into effect to create more jobs and protect American workers, though many experts say it has both positive and negative effects on the overall economy (Reuters, 2025).
One of the biggest effects of these tariffs is that the prices of everyday items have increased. According to CNBC, when companies import goods such as electronics, clothing, or toys, the extra cost from the tariffs is usually passed on to consumers. As a result, many families are facing higher prices on everyday items. A prominent drawback of Trump’s tariffs is the strain it has put on consumers’ budgets, making it difficult to cover mundane expenses. This shows how a policy designed to help domestic businesses can sometimes hurt the buyers of these products (CNBC, 2025).
Tariffs haven’t just affected consumers but also producers, specifically in the way that businesses operate. The New York Times reported that companies relying on imported materials have been forced to adjust and reduce their costs. Some businesses are looking for new suppliers in countries that are not impacted by the tariffs, while others are moving parts of their production back to the United States. According to the New York Times, these adjustments have made it more difficult to import goods by adding extra steps, such as finding creative ways to outsource materials or services at a reasonable cost. Businesses in the U.S. are hindering the flow of goods and making international trade more difficult due to the hurdles imposed by tariffs.
It is fair to say that Trump’s tariffs have produced a mix of outcomes for the United States. On one hand, these taxes are designed to protect American jobs and support the growth of American businesses. On the other hand, they have increased prices for consumers on everyday items and forced companies to change their business models, adding extra costs and slowing down business processes. According to the Wall Street Journal, this combination of advantages and challenges shows that while government policies can positively affect certain parts of the economy, they can also create difficulties for consumers and businesses alike.
Long-term Impacts
Although the current motives behind implementing tariffs in these economic conditions for the US seem reasonable for Trump’s administration to leverage the US economy, academic studies have debunked the benefits of tariffs, as they may be seen as economically inefficient. Thus, many economists have been against the goal that tariffs aren’t feasible in resolving trade deficits since countries with higher tariffs tend to have larger deficits. Jon Pevehouse, a professor at UW-Madison with research and expertise in international political economy and trade, emphasized that very few economists believe that tariffs would provide economic recovery in the long term and that, only in theory, they could reduce the trade effect. “If you’re cutting imports, that helps the trade deficit, but if you’re then cutting exports abroad because of reciprocation, then you’re not helping your trade deficit.” He furthers his statement in detail that in equilibrium, it may go down a little bit. Pevehouse continues that it’s not clear what the trade deficit is an indicator of, yet Trump thinks it’s an indicator of unfair trade deals or consumer demand. “If the goal is to cut the trade deficit, then what you have to hope for is that the depressing effect of the tariffs on imports exceeds the depressing effect on exports. If it doesn’t, then it’s not going to do much for the trade deficit.”
Pevehouse further clarifies the long-term impacts of how tariffs are an inefficient economic tool for the US, especially globally as a whole. “If [tariffs] stay on for a while, they’re really likely to tamper with such as economic growth, job growth, raise consumer prices, you kinda enter this world of stagflation, where prices are going up causing inflation, but wages are not going up because there’s no jobs, because jobs are going down.” With his statement, tariffs are considered a restrictive barrier on international trade that would result in reducing economic output, triggering lower incomes, and leading to reduced standards of living due to reduced consumption on high prices. Hence, tariffs not only raise prices to disincentivize consumption, it also divert resources and choices away from consumers that would eventually give them limited options regardless of their purchasing power.
With these sorts of factors that Pevehouse has listed coming from stagflation, this would reflect on the GDP output in the long run. “Tariffs create deadweight loss.” Pevehouse commented, “you’re gonna have higher prices, both because imports are more expensive, you’ll have export market cutbacks because states will retaliate for not buying, and you also will have domestic producers increasing prices as well.” One great example is the U.S. auto industry, which relies heavily on Canadian car parts in the automobile manufacturing process. Modern vehicles are not assembled using parts from a single country. Instead, they are the result of complex global supply chains that involve the free flow of goods across borders. For instance, a car manufactured in Michigan might have an engine built in Ontario, electronic systems from Mexico, and steel from South Korea. Tariffs imposed on imported auto parts disrupt this supply chain by increasing the cost of essential components.
With the support of Pevehouse’s statement on how tariffs affect the GDP output, the graph above reflects that US output would still be -0.3% lower with limited retaliation and -0.4% with full retaliation in the long run towards China, Mexico, and Canada. Accordingly, this would equal the US economy being smaller by $80-$110 billion yearly in 2024 dollars.
Moreover, tariffs would also go further down the road by being distributionally ambiguous across households in reducing labor income and returns to capital. Pevehouse adds to his response to this statement, claiming that the latest research suggests that, for the income side, tariffs act as a regressive tax since it harms the socioeconomic status of individuals more than those of higher socioeconomic status. As a result of this, it produces uneven labor and income effects across income groups in the United States. Consequently, as the income rises across the distribution more steeply than the tariff burden falls, the tariff burden in dollar terms becomes higher at higher incomes. A clear example of this occurred during the U.S.–China trade war under the Trump administration, particularly in 2018–2019, when tariffs were placed on hundreds of billions of dollars’ worth of Chinese imports. According to a study by the Federal Reserve Bank of New York, Princeton, and Columbia University, American consumers—not Chinese exporters—ended up shouldering most of the cost of these tariffs.
Many of the products affected were everyday consumer goods such as clothing, footwear, furniture, and electronics—items that make up a larger proportion of spending for lower-income households. For instance, the Wall Street Journal reported that discount retailers like Walmart and Dollar Tree, which serve a large population of lower-income Americans, were forced to raise prices or reduce product selection due to increased costs from tariffs. Walmart, in particular, issued statements warning that price hikes were likely for goods like backpacks, bicycles, and school supplies, which directly affect working-class families.
Based on the two graphs above, it is clear that tariffs impact the percent change in disposable income by almost three times as much for households in the second decile compared to households in the top decile. Therefore, as income rises across the distribution more steeply than the tariff burden falls, the tariff burden in dollar terms is higher at higher incomes.
With the situation of market competition domestically and internationally in applying tariffs and taxes, it generally delays the economy’s growth and depresses markets. Pevehouse reflects by saying, “Anything that creates a deadweight loss is gonna create more market frictions and probably slow things down.” Therefore, although Trump assumes that making foreign goods more expensive will benefit domestic producers, this assumption doesn’t hold in today’s economy. Supply chains are so interconnected that ‘Made in’ labels have lost much of their meaning. Most products rely on foreign intermediate goods and components, even when the final product is assembled domestically. Hence, Pevehouse provides two problems when it comes to some domestic firms in the long run. The first problem is that tariffs would increase the leverage of depressing intermediate inputs for producers. Thus, this follows up on the second problem, where despite firms being aware that tariffs would hurt them and their competition, it leads to them putting higher prices as a benefit in order to push for competitive goods with better market share. Moreover, given globalization and supply chains in other countries in the long run, a lot of goods that are being tariffed both on the import and export side with countries outside of the US, Canada, and Mexico, such as those in South Asia or Southeast Asia, have all kinds of intermediate goods. As a consequence, their intermediate inputs with tariffs would lead to detrimental effects on those countries’ third-party economies. Pevehouse adds that tariff wars undermine global confidence in American economic leadership since American policies have allowed globalization in the long run that has been built over decades. With tariffs, it would be an indication of severing diplomatic ties with other countries that economically rely on the USA’s imports from them, in that case, as a result of the change in trade. “Once you break that, it’s hard to fix it.” Jon Pevehouse concluded.
Conclusion
At current, tariffs remain a persistent and integral aspect of President Trump’s economic strategy, which is seemingly here to stay. This protectionist policy has already instigated trade retaliations from others and caused massive waves in the global economy, including possible foreign shifts away from United States products with higher prices for American consumers, especially working families, but also promotes domestic manufacturing. With recent tariffs rising, steel prices jumped, helping United States steel manufacturers, but hurting other domestic firms down the supply chain. Beyond reducing the trade deficit, tariffs are being used for a variety of different reasons, pushing specific actions and fulfilling campaign promises. More recently, citing illegal immigration, drug control, and intellectual property theft as issues linked to the tariffs. Economically, tariffs produce a deadweight loss, which hinders economic growth and disrupts global trade dynamics, making many economists skeptical of their long-term effectiveness. The recent Trump tariffs have revolutionized America’s approach to international trade and displayed a conscious move toward protectionism not seen in the past few decades. Considering this, the future of the United States economy and foreign relations remains uncertain, with many questions remaining about the effectiveness of the recent tactics being employed and whether their motives are strictly political without goals of fostering economic growth.
While tariffs may offer short-term protection, most economists argue they are inefficient in the long term. Professor Jon Pevehouse explains that tariffs can reduce GDP, raise consumer prices, and create stagflation—higher prices without job growth. Tariffs disrupt global supply chains, particularly in industries like auto manufacturing, where parts cross multiple borders. Research shows that consumers, especially low-income households, bear most of the cost. Overall, tariffs cause “deadweight loss,” slow economic growth, reduce incomes, and strain international relations. They also risk damaging the global trust in U.S. trade leadership, with long-term consequences for diplomatic and economic stability.