Raising tariffs and building trade barriers ultimately results in narrowing the economic territory and scope of activity of a country.
Reasons for the Failure of Trump’s Tariff Policy & Limits of Protectionism and Economic Backlash
President Donald Trump’s tariff policy began with the goal of protecting the U.S. economy, reducing the trade deficit, and creating manufacturing jobs. However, if we analyze the recent development process and results of the tariff policy, we can clearly see the structural reasons why this policy was bound to fail.
- Economic Failure: Backlash of Tariffs
Failure to Resolve the Trade Deficit
President Trump tried to reduce the trade deficit through tariffs, but the result was the opposite. As of 2024, U.S. tariff revenue increased to $82.9 billion, but the trade deficit increased by about 23% compared to 2016. This is because high tariffs increased the price of imported goods, increasing the burden on consumers and weakening the export competitiveness of U.S. products.
Limitations to Job Creation
Trump aimed to restore manufacturing jobs, but the effect of creating manufacturing jobs was minimal due to automation and technological advancement. According to research, it costs $500,000 to $1 million to create one job, and in the long term, it is likely to lead to a decrease in employment. There is a saying that even expensive rice cakes are not worth eating. Considering that the current US GDP is $80,000, businesses trying to start simple manufacturing businesses such as clothing, shoes, and automobile assembly in the US will have to endure high wages and prices.
Inflation and consumer burden
High tariffs have increased consumer prices and reduced household income. For example, middle-income households have lost about $1,700 per year, and it is predicted that US GDP will decrease by up to 1.3% in the long term.
- Political failures of allies
Division with allies
President Trump used the bargaining chip by imposing high tariffs on allies, but this has led to diplomatic conflicts. It has led to major allies such as the EU, South Korea, and Japan cooperating with China, which has weakened US global leadership.
Global financial market chaos
The tariff policy has caused instability in the global financial market. Investor confidence has been shaken significantly, with US Treasury yields soaring and stock markets plummeting. The loss of trust in the United States has led to the decline in new businesses and the departure of financial capital from the United States, and has triggered a rise in government bond interest rates, which has led to an increase in housing loan and auto loan interest rates for the American middle class. This situation was a major factor in Trump’s decision to take tariff deferral measures for some countries.
- There are many cases of limitations to protectionist policies
Similarity to the past case of President McKinley
Trump’s tariff policy is similar to the high tariff policy promoted by President McKinley in the past. At that time, the tariff rate increase aimed to protect domestic industries, but it ended in failure, resulting in increased consumer burden and economic recession. Trump is repeating the same mistake without properly reflecting this historical lesson.
Failure cases of import substitution industrialization
The ‘import substitution industrialization’ policy of South American countries blocking external competition to protect their domestic industries led to weakened competitiveness and economic recession. Trump’s tariff policy is also repeating these failures and isolating the US market.
- Possibility of economic recession and reduced trade
Risk of stagflation
Economists warn that Trump’s tariff policy is likely to push the U.S. economy into a state of stagflation (economic recession and rising prices). This will lead to decreased consumption and investment, which will have a negative impact on long-term economic growth.
Reduced global trade
Oxford Economics predicted that Trump’s tariff policy will reduce the value of global trade by more than 7%. This will slow down the global economic growth rate and weaken international cooperation.
Structural reasons why tariff policy is bound to fail
Trump’s tariff policy contributed to protecting certain industries and increasing tax revenues in the short term, but in the long term, it will lead to negative results such as slowing economic growth, decreasing employment, and rising prices. It also caused conflicts with allies and global financial market turmoil, and it was a political failure. Considering the limitations of protectionist policies that have been repeated throughout history, Trump’s tariff policy is an approach that is structurally difficult to succeed.
TOMOYU 