Defenders of tariffs admit that they cause short-term pain, but predict that they will result in long-term gain. But that doesn’t seem to be true: tariffs cause long-term damage. Poor, backward nations tend to impose higher tariffs than wealthy nations or countries with rapidly growing economies, which benefit from free trade.
As Noah Smith notes,
The Trump administration often touts tariffs as a way of exchanging short-term pain for long-term gain. Yes, there will be disruption in the short term, they argue, but once manufacturing returns to American shores and trade deficits disappear, prosperity will be supercharged.
That was always incredibly unlikely to be true. If it were, we’d probably see stock markets up since Trump’s election instead of down, since stock markets are forward-looking. And as I explained in my last post, broad-based tariffs are simply incredibly unlikely to reindustrialize America, now or ever.
Evidence shows that this tends to be the case. You can just look at cases where countries raise tariffs by a substantial amount, and see what happens to their economies. This is what economists Furceri et al. (2020) do, and they find that GDP tends to go down after a big tariff hike. And for very large tariff increases, the magnitude of the output decline increases as the years go by — the long-term pain is worse than the short-term pain.
Plenty of other research, finds similar results, of course. And when you remove poor countries from the sample, the effect is even more stark; tariffs seem to lead to worse outcomes for rich nations than poor ones….the facts seem consistent with the standard story, in which both A) a loss of specialization in production, and B) deindustrialization from the soaring cost of intermediate goods leads to long-term pain. On top of that, as economist Tyler Cowen writes, erratic tariff policies like Trump’s probably cause uncertainty that hurts business investment.
The part about deindustrialization is especially important, because it undercuts the core beliefs of Trump and the MAGA movement. As Baqaee and Malmberg (2025) show, any simple model in which capital goods get taxed at higher rates is going to show less capital accumulation over time — in other words, deindustrialization….Already, we see factory construction slowing down under Trump.
Factory construction has fallen a bit since Trump became president in January. That’s a bad sign for people hoping that the tariffs will create more factory jobs. Factories are still being built, but at a lower rate than last fall. Factory construction had risen significantly in 2022 and 2023.
Tariffs can shrink the manufacturing sector, by increasing the cost of raw materials and inputs that manufacturers use to make things. For example, in the first Trump administration, tariffs on steel and aluminum “resulted in 75,000 fewer manufacturing jobs in firms where steel or aluminum are an input into production,” by increasing their “costs of inputs” that made their products less competitive. That big job loss was much larger than the paltry 1,000 jobs gained in the U.S. steel industry due to the tariffs.
The stock market thinks the recent Trump tariffs were bad for manufacturing companies. When President Trump raised tariffs, the stocks of manufacturers like Boeing fell more than the stocks of service sector companies like McDonald’s. And when President Trump suspended some tariffs, manufacturers’ stock prices rose more than the price of service sector companies like restaurant chains.
Prosperity doesn’t require tariffs. Australia and the United Kingdom are prosperous, and have low average tariffs of around 1%.
The most backward nations on Earth often have tariffs of over 10%, such as the following African countries, which are all much poorer than the average country, and are not making much economic progress:
- Cameroon: Has a weighted mean applied tariff of 15.5%.
- Sierra Leone: Has a weighted mean applied tariff of 14.1%.
- Nigeria: Has a weighted mean applied tariff of 12.4%.
- Guinea: Has a weighted mean applied tariff of 12.2%.
- Guinea-Bissau: Has a weighted mean applied tariff of 11.7%.
- Republic of Congo: Has a weighted mean applied tariff of 11.6%.
- Burundi: Has a weighted mean applied tariff of 11.3%.
- Togo: Has a weighted mean applied tariff of 11.0%.
The prosperous African nation of Botswana has a much lower tariff rate, around 5.6%. It was once one of the poorest nations on Earth at independence, but today, it is wealthier than the average country in the world, and has a higher per capita income than some European nations like Ukraine, Kosovo, and Moldova.
On April 2, President Trump imposed large tariffs on the nations of the world that he called “reciprocal,” then temporarily reduced those tariffs to 10% for 90 days (except on China, whose tariffs he increased further to 145%).
But those tariffs were not actually “reciprocal,” notes CNBC, because the tariffs Trump imposed on foreign countries were much bigger than the tariffs they impose on us. For example, he imposed a 97% tariff on Cambodia, which had a 7.9% tariff on our products. And he imposed a 95% tariff on Laos, which had an 8.3% tariff on American products. And he imposed a 90% tariff on Vietnam, which had a 5.1% tariff on American products. And he imposed a 72% tariff on Thailand, which applied a 6.3% tariff to our products. On April 9, those tariffs imposed by Trump were temporarily reduced to 10% for 90 days.
