In the modern era of increasingly globalized trade and economic exchange, the idea of protectionism, i.e. implementing measures like tariffs to restrict imports in an attempt to protect domestic industries, is rarely on the table. This is because nowadays, the benefits of having an economy that is open to international exchange is seen as far greater than any cost otherwise incurred. Nonetheless, with his recent “Liberation Day” announcement on April 2nd, Trump has vowed to go against conventional economic wisdom by implementing tariffs on a variety of countries, and especially high tariffs on certain countries, like China (Buchwald, 2025). However, despite Trump’s claims that this will revitalize American manufacturing moving forward, economists remain dubious. In order for us to understand why this is the case, we need to analyze the economic principles underlying Trump’s tariff announcement.
Based on the concepts of comparative and absolute advantage, first developed by economists Adam Smith and David Ricardo, trade is typically a win-win scenario for everyone involved (Smith, 2009; Ricardo, 2019). Specifically, when countries open up to trade, they are able to specialize in producing goods where they have a comparative advantage, meaning goods that they are able to produce at a lower opportunity cost than their counterparts, also importing goods in industries where they do not have a comparative advantage. Opportunity cost means what alternatives are lost by undertaking a certain activity. In the context of the global economy, a lower opportunity cost means that, given the other alternatives, a certain country producing this particular good or service is a more efficient allocation of time and resources than if another country were to produce it. On the other hand, the term absolute advantage means that a given country is able to produce a good more efficiently or at a lower cost than other countries, regardless of opportunity cost.
In analyzing how these economic concepts are applied, we also have to consider how countries with different kinds of economies interact with each other. Of course, economies like the U.S and China that are among the largest in the world hold an absolute advantage in many different industries when compared to third world countries. However, as economist Douglas Irwin notes “Even if a developing country lacks an absolute advantage in any field, it will always have a comparative advantage in the production of some goods” (Irwin, 2009). Thus, this system allows for the global marketplace to exist where each country can provide their own unique goods and services in which they specialize. For example, agricultural exports account for a huge part of America’s economy, because America has a comparative advantage in producing these types of goods. Conversely, America imports a lot of cheap clothing, because other countries that have a lot of unskilled laborers, like China and India, are able to manufacture these goods at a comparatively lower opportunity cost.
This system works best where there are no barriers to trade, operating like a well-oiled machine. On the other hand, protectionist policies, especially coming from one of the world’s largest economies, can quickly throw a wrench in that machine. Specifically, based on the principles of supply and demand, tariffs reduce imports, lead to a decrease in consumer surplus and societal deadweight loss, as seen in the graph below (See Appendix A). The tariff is also mainly paid by the consumer, which in this case, will be the American citizen, despite Trump’s promise to lower prices. Even worse, Trump’s justification for this policy, that being the trade deficits that the United States has with other countries, makes little economic sense. Trade deficits are not inherently bad, and in the context of trade specialization, are almost inevitable. The reality is that economic philosophy underscoring Trump’s tariff policy comes from a period in history where the world had not yet experienced the wide-reaching effects of globalization. Specifically, Trump argues these policies will increase domestic investment, move manufacturing to the U.S, protect American industries and generate more jobs (Price, 2025). However, many economists believe that U.S industries, which in the current economic landscape, rely heavily on imports, will be adversely affected.
Economists are not impressed with Trump’s tariff extravaganza, noting that, despite his claims that Americans will reap the benefits of this policy for years to come, that it is actually most likely Americans that will feel the most pain resulting from the implementation of these policies. Specifically, they argue, that, in the immediate future, the tariffs are likely to increase consumer prices and stoke inflation. Furthermore, as a result of these policies, businesses will likely experience a decrease in profitability and will be forced to lay off more workers, resulting in increased unemployment. Macroeconomically, the use of widespread tariffs in this way also dramatically raises the likelihood of a recession occurring. A recession is defined as two consecutive periods of negative economic growth, which could lead to a significant slowdown in the U.S economy, potentially taking years from which to recover (Picchi, 2025).
The ironic thing is that the U.S, being the largest economy in the world, is the main beneficiary of the trade system as it currently stands, leaving little reason to justify a change of this magnitude. However, in understanding Trump’s rationale for this type of policy, it’s crucial to understand how he plans to use tariffs as a political tool. Apart from using tariffs to force other countries to the negotiating table, Trump is also using them to help maintain his political image domestically. Specifically, the idea that other countries are “taking advantage” of the U.S through trade was one of the arguments that got Trump elected into office in the first place. As part of this, keeping up the appearance that he is addressing this “problem” through protectionist policies is crucial for maintaining his political image amongst his supporters, despite the fact that the economic justifications underlying these policies are poor.
Trump has defended is tariff policy saying that while in the short term, consumers may feel some pain, in the long term, the United States economy will experience significant benefit. However, as economists like to say, “In the long run we’re all dead” (Keynes, 2024). I’m sure that given enough time, Trump’s tariff policies could reap some benefits for someone, even if he is allowed to serve a (highly unconstitutional) third term. However, the same could be said for almost any economic policy. Eventually, at some point, there will be someone who benefits. However, it’s highly unlikely that at that point, it will have been worth all the trouble to get there.
References:
Buchwald, E. (2025, April 2). Trump just massively escalated his trade war. here’s what he announced | CNN business. CNN. https://edition.cnn.com/2025/04/02/business/liberation-day-trump-tariffs/index.html
Irwin, D. A. (2009). Free trade under fire: Third edition. Princeton University Press.
Maynard Keynes, J. (2024). Tract on monetary reform. ALPHA EDITION.
Picchi, A. (2025, April 4). Here’s why experts think Trump’s tariffs could hurt the U.S. economy. CBS News. https://www.cbsnews.com/news/trump-tariffs-economists-forecast-stagflation-recession-risk/
Price, M. L. (2025, March 6). How trump justifies his tariffs - from budget balancing to protecting “The soul” of america. AP News. https://apnews.com/article/trump-tariff-justifications-50f0b4416234e63c7136eaa5c5f96759
Ricardo, D. (2019). On the principles of Political Economy: And Taxation. Forgotten Books.
Segal, T. (n.d.). Absolute vs. comparative advantage: What’s the difference? Investopedia. https://www.investopedia.com/ask/answers/033115/what-difference-between-comparative-advantage-and-absolute-advantage.asp
Smith, A. (2009). Adam Smith: The Wealth of Nations. Read a Classic.
Appendix:
Appendix A:
