A year of tariffs: Donald Trump's trade policy impoverishes US workers

Writing for a publication associated with the International Monetary Fund, United States (US) Trade Representative Jamieson Greer has argued that the economics profession needs to re-examine its disdain for tariffs as a tool of trade policy. This comes in the context, of course, of US President Donald Trump’s extensive use of tariffs as a mechanism to address America’s persistent trade deficits with most of its large trading partners. Mr Greer says that the US “is using tariffs and agreements on reciprocal trade to encourage inbound productive investment, increase incentives for domestic production, and open markets for US exports”, and that Mr Trump’s trade policy “is taking bold action to lay the foundation for an international economic system grounded in balance, reciprocity, fairness, and resilience”. Few around the world will take this assessment of Mr Trump’s actions and motives from a member of his Cabinet at face value. It is, nevertheless, worth engaging with the facts regarding how these tariffs are playing out in the real world, now that they have been stated policy in the US — albeit restricted, reversed and limited to varying degrees by the courts — for a year.

 

Mr Greer’s argument is strongest on the subject of opening up markets to US goods. It is certainly the case that many countries, rather than launching a trade war against the US, have chosen to negotiate instead, accepting some level of tariffs in order to maintain access to the US market while dropping their own restrictions on US manufactures. Given that many of these deals, while agreed at the highest level, have nevertheless been complex to actually implement, it is hard to see them having a major impact on US exports yet. Besides, even if — to take one example — American car companies now technically have unrestricted access to the Japanese car market, it does not mean that the residents of that country will abandon their preference for small, economical cars to buy the huge gas-guzzlers that the US automotive industry produces. The notion therefore that domestic production is increasing must be rejected. The data suggests that US industrial production increased only by 0.13 per cent every month since the beginning of 2025, which is about the same as its growth rate during the 2010s.

 

Meanwhile, US citizens are bearing the brunt of the higher costs that have been imposed on them by tariffs. The rate of inflation in that country, which spiked following supply constraints and demand stimuli in the pandemic, stabilised from late 2022 onwards; but rose again at the beginning of Mr Trump’s term, alongside the introduction of his new trade policy. Further, new evidence from economists at Morgan Stanley sheds light on how US firms that are exposed to tariffs are changing their behaviour. Rather than taking a hit to profits, it appears that they are raising prices of their output and controlling their labour costs. In other words, it is US workers — who are supposedly being protected by tariffs — who are in fact paying for them through lower wages and reduced purchasing power. Even in the high-inflation period in the first half of President Joe Biden’s term, wage growth outstripped inflation; under President Trump, this is no longer the case. Labour’s share in gross national income is at the lowest level in eight decades. Mr Greer’s contention that tariffs will build a fairer economic system would be roundly contradicted by those in the countries his President has targeted for tariffs. But it is clear, as economists predicted, that US citizens themselves are the ones whom the tariffs hurt first and foremost.