MORE TARIFFS, HIGHER PRICES, FEWER SUPPLY CHAINS

 

After regaining the White House, President Trump began claiming unprecedented tariff authority under the International Emergency Economic Powers Act (IEEPA). On April 4, 2025, Trump sent international and domestic stock markets into a tailspin by invoking this emergency law to impose "reciprocal tariffs" on imports from select countries not subject to other sanctions. A universal 10% tariff took effect on April 5, with higher rates indiscriminately announced in the following weeks.

The U.S. Constitution grants Congress the sole power to regulate commerce with foreign nations. This includes the authority to impose tariffs. Most constitutional law experts agree, and so far, three lower courts have ruled, that the IEEPA gives Trump no power to impose tariffs unless there is an “unusual and extraordinary threat,” a condition not found in this case.  On November 5, the US Supreme Court will begin hearing arguments about the legality of Trump’s tariffs. A final decision is not expected until June or July of 2026.

Over the past seven months, Trump’s tariffs on various countries (friend and foe) and industries (steel, smart phones, aluminum, cars, car parts, semiconductors, and pharmaceuticals) have gone up or down without warning, often based on Trump’s political whims.

Tariff policy has become so unpredictable that financial analysts coined the acronym “TACO”, which stands for “Trump always chickens out.” This term describes his habit of announcing a tariff and then delaying the actual implementation if the stock market reacted badly. Under recent pronouncements, India and Brazil both face a 50% on most goods. Canada is at 35%, and China temporarily 47%, reduced from 100%, after the recent meeting with president Xi.

Most economists do not favor tariffs. Trade barriers raise prices and reduce available quantities of goods/services. Historically, tariffs often result in lower income, reduced employment, lower economic output, and higher inflation.

Following World War II, the United States favored an open trading system that rejected protectionist trade policies. The consensus was that international policymakers should promote free trade and the economic benefits it brings over imposing barriers to trade.

The Trump administration has rewritten these rules and turned U.S. trade policy on its head. At an average effective rate of around 18 percent, American import taxes are now the highest they have been in nearly a century.

What are the Trump administration’s justifications for imposing tariffs? According to the White House Fact Sheet: 1) The trade deficit is “an unsustainable crisis ignored by prior leadership.” Many economists disagree and The Council on Foreign Relations responds, “The trade deficit is a sign of a strong, attractive economy where foreigners invest heavily.  It allows the U.S. to consume more goods than it produces. It reflects efficient global capital markets, supports domestic investment, and provides a wider variety of goods for consumers.”

2) Tariffs encourage “Made in America.” Economists point out that this reasoning involves both potential benefits and significant drawbacks. Tariffs can support specific domestic industries. This is a reason to invoke “targeted tariffs’ on critical industries like steel rather than on entire countries. However, on the whole, tariffs lead to higher costs for consumers and businesses, trigger international retaliation, and cause broad economic disruptions.

3) Tariffs encourage the reshoring of American manufacturing. Politico points out that “President Donald Trump is pushing manufacturers to bring factories home. His policies are punishing them when they try.” Politico explains, “Tariffs meant to protect American producers are raising the cost of the very materials they need to expand their footprint in the U.S.”

4) Tariffs are a boost to government revenue. This reason is not listed on the Trump White House Fact Sheet, but is frequently brought up by the President as a reason for his tariff policy. The Republican “Big Beautiful Bill” kept taxes low for the wealthy and increases the federal deficit. To negligibly help plug this largest ever, 38 $trillion deficit, the Budget Lab at Yale recently calculated, “The U.S. has collected roughly $165 billion to $200 billion in tariff revenue for this fiscal year.”

The Trump administration fails to point out that the more effective a tariff becomes at restricting imports, the less revenue it generates. Moreover, Trump’s claim that the exporting country pays the tariff is not true. U.S. importers pay the tariffs to U.S. customs. These costs are passed on, to U.S. consumers through higher prices, or absorbed by U.S. businesses.  Americans ultimately bear the economic burden.

Recent research has pointed out another massive disadvantage to tariffs – supply chain disruptions. In the latest issue of Foreign Affairs, Shannon O’Neal, Senior Vice President at the Council on Foreign Affairs, concludes, “The Trump administration’s tariffs exclude the United States from the overall economic boost global supply chains provide…Unless American companies can buy parts from foreign firms at a reasonable cost and locate some of their operations abroad, they will struggle to make products as well, as cheaply, and as quickly as foreign competitors that are connected to global supply chains.”

O’Neal is most concerned about the ability of American defense contractors to “go it alone” without access to international supply chains.

Following seven months of new tariffs, the overall economic analysis indicates a failing "report card" for their impact on the U.S. economy. Hopefully, the Supreme Court will not be too late in reversing Trump’s illegal imposition of these harmful tariffs. This will restore prudent guardrails rather than insanity into American trade policy.