Self-inflicted injury: On Trump tariffs and the U.S. economy  

Economic estimates from United States President Donald Trump’s first term suggest that the sweeping tariffs his administration imposed on nearly $400 billion worth of goods hurt the American economy. They also resulted in a net loss in real (inflation-adjusted) Gross Domestic Product (GDP), a decline in annual household income, and job losses in the manufacturing sector. A 2019 discussion paper by the Federal Reserve Board, Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector, found that industries most exposed to tariff increases saw relative reductions in employment. The negative effects of rising input costs and retaliatory tariffs outweighed the benefits of import protection, leading to a net decline in manufacturing jobs, an estimated 0.6% loss, or about 75,000 fewer jobs than would have existed without the tariffs. Similarly, a 2019 report from the Congressional Budget Office (CBO), ‘An Update to the Budget and Economic Outlook: 2019 to 2029’, projected that trade barriers would reduce U.S. economic output. By 2020, the CBO estimated a 0.3% decline in real GDP and a $580 reduction in average real household income (in 2019 dollars).

The 25% tariff on iron and steel imports by Mr. Trump, in his second term, mirrors a similar policy from March 2018. In his first term, Canada, Mexico and the European Union were initially exempted until June 2018, after which retaliatory tariffs followed until a truce was reached in May 2019 through a revised North American trade agreement. Economists have pointed to these tariffs, which continued to a large extent under the Biden administration, being one of the factors that contributed to high inflation in recent years. In 2023, China dominated global steel production with 1,019 million metric tons per annum (mmtpa), accounting for 54% of global output, followed by India (140.8 mmtpa, 7%) and the U.S. (81.4 mmtpa, 4%). Despite its domestic production, the U.S. relies heavily on imports from Canada, Mexico, and Brazil. Steel is a critical material across industries, including automotive, construction, appliances, and oil and gas. While the American steel industry has welcomed the new tariffs, imports are unlikely to decrease immediately, as a global surplus, driven by China, keeps prices competitive. Even a slight increase in steel prices could ripple across the economy, raising costs for consumers struggling with affordability. If history is any indication, Mr. Trump’s tariffs may be the start of another round of self-inflicted economic damage for an already strained U.S. economy, albeit still the world’s largest.