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Will tariffs help or hurt the United States economy?

Essay By
Learn more about J.H. Cullum Clark.
J.H. Cullum Clark
Director, Bush Institute-SMU Economic Growth Initiative
George W. Bush Institute

The incoming administration and Congress will make decisions over the first half of 2025 in five key economic policy domains: tariffs and trade, industrial and innovation policy, business regulation, the national debt, and tax reform.

President-elect Trump proposes raising tariff rates to 60% or more on imports from China and 20% on imports from all other countries. The full plan would raise average tariffs on imported goods to about 17%, according to an analysis by the nonpartisan Tax Foundation 

To put this figure in perspective, average tariffs were approximately 20% under the Smoot-Hawley Tariff of 1930, which many economists believe contributed to the Great Depression. Average tariff rates fell to an all-time low of 1% during the George W. Bush Administration, then roughly doubled to just over 2% as a result of executive orders issued during the first Trump Administration and renewed by President Biden. President-elect Trump will also consider expanding restraints on exports of sensitive technologies – notably advanced semiconductors and chip manufacturing equipment – to China and other strategic rivals. 

Why it matters: The proposed tariff plan would mark the most dramatic reversal yet in the U.S.-led process that brought trade barriers down around the world from the end of World War II to the early 2000s. The tariff plan would raise taxes borne by American consumers by about $2,250 to $3,000 per household. It would very likely reduce U.S. exports to other countries, for three reasons:  

  • Scarce labor and other resources would shift away from industries in which the United States is an exporter to industries in which it is currently a net importer. 
  • Foreign countries would have fewer dollars to pay for U.S.-sourced imports. 
  • Foreign governments would likely retaliate against U.S. exporters. 

History teaches that protecting mature companies behind tariff walls makes them less innovative and productive over time while locking resources into place that otherwise would find their way to more dynamic, growing companies. 

Our take: Leave tariff rates alone. They are a poorly targeted way to help working-class people. Tariffs are a mechanism for redistributing income from workers in export-oriented industries and consumers, on the one hand, to workers and shareholders in domestic market-focused companies facing foreign competition on the other. 

Congress and the new administration should pursue measures that improve the well-being of working-class people without regard for the industry in which they work rather than increase tariffs. These include increasing support for education and skills-building, particularly by making Pell Grants more widely available for trade schools, raising child care subsidies, and expanding the Earned Income Tax Credit and other provisions that increase working people’s earnings. The administration should narrowly tailor China-focused trade measures to products of significant national security importance – for instance, by further restricting exports of advanced semiconductor manufacturing equipment to China.