Tariffs: The Good, The Bad, and The Trump Kind.

The President-elect doesn't understand his economic policy.

Trump at The Economic Club of New York.

The 2024 Presidential Election was decided by the economy. Three-fourths of Americans thought the economy was on the wrong track, and a similar percent reported their family experienced hardship due to inflation. The incumbent President was historically unpopular, so voters decided to give Donald Trump another try. Unfortunately, I don’t think they’ll see much improvement.

To the extent that the mishmash of thoughts running through Trump’s mind can be called a “policy,” his economic plan consists of three components:

1. Tax cuts for the rich,

2. Something about mass deportations to decrease healthcare costs, and

3. Blanket tariffs on all imported goods.

Tariffs have a unique place in the American political landscape. Favored by labor-aligned Democrats, the party largely discarded them with Clinton’ North American Free Trade Agreement (NAFTA). Trump has run on them for close to a decade, helping create the pro-labor veneer shrouding his explicitly pro-capitalist inclinations. After Trump implemented tariffs on Chinese steel during his first presidency, Ohio Democratic Senator Sherrod Brown crossed party lines to protect them.¹ At the same time, Trump’s economic advisor, Gary Cohn, resigned in protest, highlighting the eclectic and confusing place MAGA tariffs occupy in the political environment.²

While I am sympathetic to tariffs and other policies that protect American workers, that’s not likely to come to pass in a second Trump administration. Not only is his “plan” likely to hurt the working class, but it’s borderline economic suicide.

“What are tariffs?" and similar Google searches have peaked following Trump’s election.

The Good Kind of Tariffs

As the theory goes, tariffs protect American industry and workers from foreign developments and exploitative labor practices. For example, let’s say India invents a superior engine that results in better cars. If Indian vehicles enter the American market without a tariff, they will quickly out-sell domestic competitors. Not only do they have better engines, but India has a pitiful minimum wage of $2.16 a day and virtually no labor protections, meaning their labor costs are much lower than those in the U.S.³ This will lead to lower sticker prices on a superior product, which consumers will favor over the American counterpart. Increased competition and decreased sales will motivate American auto manufacturers to close plants in Michigan, lay off American workers, and relocate to India, where they, too, can take advantage of cheap labor. This is known as “offshoring,” the practice that devastated Detroit and many other American auto-making communities over the last half-century.

A 2020 Department of Labor report found offshoring increased under Trump despite his claims to stop it.

To prevent this capital flight that will inevitably lead to Americans losing their jobs, the American government will introduce tariffs on Indian cars. A special tax will be placed on them, artificially inflating the sales price for would-be buyers. With a price higher than that of American-made cars, fewer consumers will choose the foreign-made option. This achieves two things.

First, it gives American industry time to catch up and compete with superior technology. It won’t take long for American automakers to reverse-engineer the improved Indian engine, meaning they’ll be able to offer a comparable product to the market. Now, when someone goes car shopping, American vehicles will have similar performance (top speed, miles-per-gallon, etc.) at a competitive price to foreign-made options. Naturally, sales will respond, and American automakers won’t see the immediate need to offshore. (Plus, they’re avoiding the tariff by making things here.) This means they can keep manufacturing in the United States, employing American workers in a heavily unionized industry. 

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Second, though this is not the concern of the pro-capitalist American government, tariffs prevent a race-to-the-bottom on labor exploitation. Without tariffs, every automaker would be financially incentivized to relocate to a country like India, pay workers far less than they do in the U.S., and reap the difference as profit. Thanks to the United Auto Workers union, the average American autoworkers makes $28 an hour ($224 a day),⁴ far more than Indian automakers make of $5.45 an hour ($43.60 a day).⁵ When we factor in the 300% cost of living difference between the U.S. and India, Indian autoworkers make about $130.80 a day by American standards, just 58% of what American workers make.

Indian workers and the Communist Party of India protest Prime Minister Modi’s further deregulation of manufacturing (2015).

Absent a financial incentive such as tariffs, the capitalists at GMC, Ford, and Chevrolet will take one look at their balance sheet and move their manufacturing plants to India, or any of the other nations that won’t fine them every time a worker loses a hand on the assembly line. By creating a financial incentive not to do that, American tariffs ensure countries (including our own) aren’t gutting labor protections and deflating the minimum wage to attract foreign capital. We saw this dynamic materialize when Clinton passed NAFTA, which removed tariffs on trade with Canada and Mexico. Now, capital (the automakers) could cross borders to find their optimal labor situation, while workers were hindered from traveling. According to a 2017 paper by economist Alonso de Gortari, after NAFTA was implemented, 38% of the value added in cars produced in Mexico and then sold in the U.S. originated from the U.S.⁶ That means American automakers are making 38% of a cars’ parts in America, shipping them to Mexico to be assembled by lower-wage workers, and then bringing them back to American to sell the final product. While Trump (correctly) ran against this absurdity in 2016, he (unsurprisingly) reneged on his promise. Trump replaced NAFTA with the United States-Mexico-Canada Agreement (USMCA), which was the same policies under a new the name. However, the USMCA did promise the Mexican and Canada governments the United States would waive future tariffs (like the one Trump is currently proposing) on automobiles made in their countries.⁷ So much for that “working class GOP” I’ve heard so much about!

While tariffs have merit from both a labor and social perspective, Donald Trump’s promised tariff regime does not.

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The Bad Kinds of Tarrifs

Along with tax cuts and mass deportations, Trump’s economic plan rests on blanket tariffs. He has promised to place 10% to 20% tariffs on all imports and up to 60% to 100% on America’s largest non-North American trading partner, China.⁸ As you can probably tell from the above example of Indian cars, tariffs work well when they are precise. When Trump instated select tariffs during his first term, the results were positive. The Brookings Institute, not a fan of workers’ rights, found that Trump’s 2018 steel tariffs protected “thousands” of American steelworker jobs and created 1,800 new jobs for washing machine manufacturers.⁹ But, what the new Trump tariff plan is missing is the fact that some workers only have jobs thanks to imports. For example, if a 100% tariff is placed on building materials that America does not produce, construction workers will suffer. When the price of those imported goods is increased, companies will lay off workers to protect their profits. That’s bad, in my opinion.

This minefield of worker interests is why tariffs should be used like a scalpel: carefully wielded to deliver targeted, studied solutions that ensure the costs to the American workforce don’t outweigh the benefits. This is true both in terms of American jobs and workers’ purchasing power, which will be reduced by increased prices. But when Trump bursts into the operating room and starts swinging a chainsaw (100% on Chinese goods) when the fine-blade of a trained doctor would be better (10% on competitors to heavily-unionized American industries), things are going to get ugly. And that’s an understatement.

The Trump Kind

What makes this discussion even more difficult is that Donald Trump does not understand how tariffs work. During his September appearance before the Economic Club of New York, Trump was asked how he planned to bring down the cost of child care: His answer:

“Child care is child care. It’s something you have to have in this country. You have to have it. We’re going to be taking in trillions of dollars [through tariffs]. As much as child care is talked about as being expensive, it’s — relatively speaking — not very expensive compared to the kind of numbers we’ll be taking in [through tariffs].”

This is gibberish. As we covered, the purpose of tariffs is to dissuade American consumers from buying a foreign-made product. If the government is “taking in trillions” through these tariffs, that means Americans are still purchasing foreign-made products instead of American-made ones. In Trump’s scenario, where tariffs are generating “trillions” for the government, American industry is being walloped by foreign products. As a result, American workers will be laid off, consumers will pay higher prices, and companies that are losing business to competitors with foreign labor will offshore. (Plus, there’s no explanation as to how this revenue will go towards child care.) It’s no exaggeration to say Trump does not understand the purpose of tariffs, the central premise of his economic plan. What he is proposing is a lose-lose-lose-lose scenario. Yikes.

If you read my post-election analysis, you know I’m not one to blame the American people for electing this economic buffoonery. While the electorate chose this economic plan over the Democrats’ option, uninformed decisions are to be expected given the confusing and head-scratching nature of our capitalist economy. At the heart of American capitalism is a contradiction. It requires both the consent and the exploitation of the working class to continue. Business owners need workers to come to work everyday, so they can take the labor they create as profit. To give the workers just enough that they don’t buck the system, our capitalist government has made small concessions to the working class to keep the machines running and the profit lines rising. Tariffs are one such concession, but they are still a bandaid to a primarily broken system. When the Democrats ignored them and the Republicans mentioned them (even in a factually incorrect manner), the voters chose the latter. But the kind of tariffs Trump is set to impose are not a gift to labor. They are a nationalist policy dressed up as a labor (and somehow childcare ???) solution. While I will pleasantly eat my words if Trump’s plan works, all indications show this will worsen the economic woes that caused American to vote for him.

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1. https://www.brown.senate.gov/newsroom/press/release/brown-blocks-effort-to-gut-presidents-steel-tariffs

2. https://www.nationalreview.com/2018/03/white-house-economic-adviser-gary-cohen-to-resign-after-tariff-dispute/

3. https://www.india-briefing.com/news/guide-minimum-wage-india-19406.html/

4. https://www.cbsnews.com/news/how-much-do-uaw-workers-make/

5. https://in.talent.com/salary?job=automotive#:~:text=Find%20out%20what%20the%20average%20Automotive%20salary%20is&text=The%20average%20automotive%20salary%20in,to%20%E2%82%B9%203%2C000%2C000%20per%20year

6. https://www.semanticscholar.org/paper/Disentangling-Global-Value-Chains-%E2%88%97-JOB-MARKET-Gortari/8821b60a1d6c6f9a15e3e22f48649c5415bda985

7. https://www.industryweek.com/the-economy/article/22026500/how-will-the-shift-from-nafta-to-usmca-affect-the-auto-industry

8. https://www.cnbc.com/2024/09/11/trump-trade-policies-will-fuel-freight-rates-consumers-pay-price.html

9. https://www.brookings.edu/articles/did-trumps-tariffs-benefit-american-workers-and-national-security/