The Folly of Trump’s Trade War
Tariffs are a tax on consumers and a threat to prosperity.
Less than a month into his second presidency, Donald Trump has ignited a multipolar trade war with China, and the United States’ neighbors to its north and south—Canada and Mexico. The free trade stability of the past century now faces collapse, as populist and nationalist sentiment drives economic self-sabotage worldwide.
Chrystia Freeland, the former Minister of Finance and a Liberal MP, denounced Mr Trump’s unprovoked bellicose behavior towards Canada on CNN, describing it as a “betrayal of a friend,” inquiring, “What does Trump have against Canada?” and stating that “many Canadians are hurt” as a result of the actions.
Ms Freeland is correct—Mr Trump’s behavior is erratic and unprovoked. His grievance with Canada does not pertain to matters of trade but rather to impose blame and extract concessions, that may not exist within the realm of possibility, from Prime Minister Justin Trudeau as a result of fentanyl and other drugs entering through the United States’ northern border over the last four years.
The egregious dereliction of duty at both ends of the United States border, however, is the fault of the malpractice of former Secretary Alejandro Mayorkas, who was impeached by Congress for his failure to comply with and enforce federal immigration law, as well as his repeated lies under oath about the state of border security.
But Mr Trudeau and the Canadian people—nor even the government and people of Mexico—cannot be held liable for the incompetence of a previous cabinet secretary. In fact, both nations recently undertook measures to shore up their borders as a result of the new president’s ultimatum.
Mr Trump pressed forward regardless. Washington enacted the tariffs, set to take effect Tuesday, dealing a blow to markets, businesses, and consumers alike.
Free trade, though often demagogued against, has been the backbone of recent economic prosperity, and this forcible disruption will feed the cost-of-living crisis and reduce economic growth. Mr Trump calls tariffs “the most beautiful word in the English language,” claiming they will revive manufacturing, replace the income tax, and erase the national debt—an assertion as absurd as it is alarming.
Whatever benefit tariffs purport to gain in protecting sectors such as manufacturing is negated by increased costs on consumers and businesses, trade retaliation—which has already been announced by the governments of China, Canada, and Mexico—and reduced competition.
Artificially increasing costs, as a result of steel tariffs, will cause more damage to the economy at large—even if manufacturing production is protected. Per research from Brookings, the ratio is 600 to one—of jobs that were at risk as a result of Mr Trump’s previous tariffs in 2018 versus the number saved. In simpler terms, this means that while some firms benefit, a greater number suffer, leading to net job losses and economic inefficiency.
The forces of populist demagoguery like to attack economists and those who adhere strictly to free trade as academics without real-world experience or historical nuance. Yet, I previously explored real-world applications of tariffs in my article, “The Travesty of Tariffs.”
I wrote that the fixation on tariffs as a remedy for countering China's economic aggression, and in countering other unfair trade practices (excluding the fact that Mr Trump is imposing these present tariffs as a punitive measure for non-trade-related issues), is a misdiagnosis of the problem.
Tariffs are the bluntest and most self-defeating tool. Instead of erecting artificial barriers that harm consumers and businesses, the U.S. should lower corporate taxes, slash regulations, invest in infrastructure and skilled labor, and aggressively pursue trade agreements with key allies.
Most manufacturing job losses stem from automation. While innovation-driven disruptions can be painful in the short term, the same happened with unionized toll booth operators displaced by E-ZPass and other electronic means. Few protectionists would argue for reversing automation in other industries—no one is demanding a return to manual toll booths—yet they insist manufacturing should be an exception.
Competition with China’s labor-cost advantage has driven U.S. innovation and reinforced specialization under the law of comparative advantage—ultimately benefiting the economy.
For all intents and purposes, the United States remains a manufacturing powerhouse—an impressive feat for a nation comprising just 4.2% of the world's population yet producing 15% of global manufactured goods, making it the second-largest manufacturer in the world.
One of the most famous tariffs ever enacted, and often the crème de la crème example of macroeconomic wrongdoing, is the Smoot-Hawley tariff of 1930.
Then, similar to now, protectionist Republicans sought to protect the American agriculture and manufacturing industries with broad-based tariffs of 20% on over 20,000 goods. The result? Retaliatory tariffs from every nation—the harshest and most consequential from Canada (the irony, I am sure, is lost on the president).
U.S. exports plummeted by over 60%, and unemployment spiked from 6% in 1930 to 15% in 1931, and then to 26% in 1932.
While the decline in trade will not be as dire as in the past—due to the resilience of the modern global economy—the tariffs will still disrupt international trade and exacerbate already perilous supply chain issues. This will certainly increase costs for consumers and businesses alike, which is hardly a welcome consequence when the cost-of-living crisis is cited as the greatest concern of American citizens.
Another humorous claim comes from Mr Trump's belief that tariffs will replace income tax—$2.4 trillion of which was collected in 2024, whereas tariff revenue was roughly $233 billion.
The U.S. imported $3.2 trillion worth of goods in 2023, meaning that even with a blanket 25% tariff, the maximum revenue collected would amount to $800 billion—far short of replacing the income tax, with all the economic downsides included.
From 2018-2019, when China imposed retaliatory tariffs on American soybeans, U.S. farmers lost access to their largest market, forcing the federal government to introduce $28 billion in subsidies to offset the losses—more than was ever gained from Mr Trump’s steel tariffs in the first place.
The 1828 "Tariff of Abominations" was designed to raise revenue in a similar fashion. The economic consequences were so dire that South Carolina threatened secession over the damages done to its export-dependent agricultural economy.
The Wall Street Journal editorial board has dubbed the Great Trump Tariffs of 2025 “the dumbest trade war in history.” Indeed, this intentional self-sabotage cannot be rationalized under any serious economic thinking.
The political consequences of increased costs pushed onto Americans—with businesses forced to pass higher expenses onto consumers—could prove disastrous at the midterms. The Democrats, after their scathing electoral defeat in November, find themselves gifted a boon—a perfect opportunity for their new chair, Ken Martin, to capitalize on.
The Journal astutely pointed out how Mr Trump seems to flirt with autarky—a vision of America as a closed economy producing everything domestically with other nations forced to buy into its market. This is a fantasy detached from economic reality.
Modern supply chains are deeply integrated, so even a war between Ukraine and Russia leads to a higher cost of wheat in Latin America. Cross-border trade allows firms to source components efficiently and remain competitive—which is how firms, and the workers they employ, survive.
Forcing all production onshore through tariffs will lead to fewer jobs, not more. Free trade has reinforced industry, not decimated it, with auto production capacity expanding in tandem with imports.
It is, in fact, Mr Trump’s Tariff Tax that will hollow out America’s industry.