Trump’s New Tariffs Aren’t About Forced Labor—They’re About Restoring the Tariff Wall

By Scott Lincicome and Chad Smitson of Cato.

"The “Section 122” tariffs, imposed after February’s Supreme Court ruling against President Trump’s “emergency” tariffs, expired last night and were immediately replaced by “Section 301” tariffs of roughly the same amount. The new duties range from 10 to 12.5 percent, cover goods from 60 economies, and are justified as a crackdown on “forced labor.” 

In my new column at The Dispatch, I show why these tariffs have almost nothing to do with forced labor and instead are just “a ham-fisted way to reinstall Trump’s tariff wall and protect it from another IEEPA-like defeat in federal court.” Five issues stand out:

1. The administration said the tariffs were coming before the investigation ended. President Trump, Treasury Secretary Bessent, and US Trade Representative Greer all publicly and explicitly promised that the tariffs and their revenue would replace the struck-down IEEPA regime before the investigations even started.
2. The requisite report on “forced labor” is remarkably thin. USTR’s investigation only took 82 days and generated a 98-page report to cover 60 economies, devoting little more than half a page to each, much of it the exact same empty passages copied and pasted 60 times—far short of the rigor demanded of such a consequential and far-reaching trade action. The report also contained no evidence or analysis – none – of targeted economies’ forced labor policies causing actual harm to US companies or commerce. It’s all just assumed. Nor did the USTR explain why it applied the same punitive 12.5 percent tariff rate to Angola, Libya, Russia, Venezuela, and Kazakhstan—developing countries that rank low on the Walk Free forced labor index (and have other issues!)—as it did to developed, “good actor” countries like Norway, Japan, Switzerland, and Australia.
3. The United States is hardly a forced labor angel. Section 307 of the Tariff Act of 1930 has prohibited imports made with forced labor, but was lightly enforced for over 80 years due to wide exceptions, and the Trump administration’s enforcement of the law has been much more lenient than the Biden administration’s efforts. Furthermore, the US ranks 19th among the 60 economies for the prevalence of forced labor. 
4. The tariff cure dramatically overshoots the forced labor disease. Some back-of-envelope math puts a proportionate tariff at 0.5 to 0.84 percent; Peterson Institute economist William Cline, using a different model, gets 0.23 to 0.25 percent. USTR is proposing 10 to 12.5 percent, a rate and resulting revenue (see figure below) that far exceed what could be considered a proportional response to the problem.
5. There’s no off-ramp. Section 301’s statutory goal is the removal of the offending foreign policy, yet USTR offers no benchmarks for compliance that would remove the tariffs. Indeed, a country with the United States’ exact forced-labor framework could still get slapped with duties.

As I explain, the Section 301 tariffs on Chinese imports that Trump imposed during his first term provide a telling contrast: 

Trump’s case against Chinese intellectual-property and industrial policy wasn’t without fault, but it still required an eight-month investigation and produced a nearly 200-page report on a single country. And the recommended tariffs—initially set at $50 billion to match/​offset the alleged harm from the targeted Chinese policies—came only after U.S.-China negotiations collapsed.

Forced labor is a real and complicated problem, but disingenuously dressing tariff revenue recovery in human rights language discredits the tools that might actually address it, setting a precedent for Section 301 to be an all-purpose tariff generator that any future president can invoke for any reason. Congress should fix the law before President Trump—or his successor—does even more damage.

Read the full column here.

Note: On July 24, the Liberty Justice Center filed a lawsuit in the US Court of International Trade challenging the administration’s replacement tariffs imposed under Section 301 of the Trade Act of 1974."

 

The China dish industry claimed it was a militarily strategic good in 1951

Tweet from Daniel J. Smith.

"A representative from the fine China dish industry lobbying for protectionism as a militarily strategic good during congressional testimony in 1951"

  

The Macroeconomic Effects of Tariffs

From Jeffrey Miron. 

"A recent study points out the dearth of historical research on the macroeconomic effects of tariffs, especially as a tool to analyze modern-day tariffs. The study

addressed this challenge by analyzing all major US tariff rate changes from 1840 to 2024. Drawing on historical research, congressional records, and statutes, we identified … 21 tariff rate changes, which we used to examine the macroeconomic effects of tariffs.

These examples

reveal that increasing tariff rates contracted the US economy. … tariff increases did not shield domestic industry despite their protective intent. Additionally, trade contracted markedly.

While tariffs might be expected to cause large price increases,

[o]verall prices increased [only] by around 0.5 percent at their peak. … [T]he simultaneous presence of supply-side inflationary pressures and demand-side pressures that slowed price growth could explain the muted overall change in aggregate prices.

To sum up, the

research indicates that tariff increases reduce domestic output and trade. While tariffs may protect some domestic industries, they ultimately reduce aggregate output, manufacturing activity, and the global competitiveness of US goods."

How Trump’s Tariffs Really ‘Work’

He hails Toyota’s investment, but what about the higher costs and manufacturing job losses?

WSJ editorial. Excerpts:

"Toyota may have made the decision for business reasons unrelated to his tariffs."

"The Japanese car maker’s press release lavished praise on Texas’s pro-business environment and included statements from the state’s political leaders (Attorney General Ken Paxton excepted). No mention of Mr. Trump or his tariffs. Toyota says the new plant will provide “flexibility” from “advanced manufacturing technologies,” which may offset the relatively higher labor costs in Texas."

"The U.S. has lost some 75,000 manufacturing jobs since January 2025, including 25,900 in motor vehicle and parts production. Manufacturing jobs have been declining since early 2023, so not all of these job losses stem from Mr. Trump’s border taxes."

"there’s no question his tariffs are raising costs for U.S. manufacturers. At the same time, foreign retaliation has hurt America’s farmers"

"evidence shows that U.S. companies, workers and consumers are picking up most of the tab."

"auto tariffs on Canada and Mexico alone added about $1,600 to the cost of each car made in the U.S. last year."

"tariffs drove a 10.4% increase in the average suggested retail price of a new car."

"Auto dealers—most of which are small businesses—absorbed about 4.5% of the manufacturer’s price increase."

"Dealers have shed 6,100 jobs since Mr. Trump became President."

"New vehicle sales have averaged 15.9 million in the first half of this year, down from the 17 to 18 million in the five years before the pandemic." 

‘How to Win a Trade War’ Review: The Times of Tariffs

Germany before World War I provoked backlash because of its rise in exports and overproduction, similar to China today.

By Theodore Bunzel. He is the head of Lazard Geopolitical Advisory. He has worked in the political section of the U.S. Embassy in Moscow and at the U.S. Treasury Department. Excerpts:

"“How to Win a Trade War” shows us that, even in the age of Trump, many of today’s trade tensions are a historical rerun. Germany before World War I provoked backlash because of its sharp rise in exports and overproduction, similar to China today. Its cornering of an “extraordinary 90 percent of global production” of chemicals and dyes sparked fears of dependency among the Allies. Even the White House’s coercive Liberation Day tariffs have an echo in history: 1870s France hiked tariffs 24% on its neighbors and demanded they negotiate more favorable trade deals within six months, a gambit that—like Mr. Trump’s—largely succeeded in forcing trade partners to submit to new treaties.

With protectionism becoming more fashionable, Ms. Keynes and Mr. Bown provide a helpful reminder that tariffs are, generally speaking, economically destructive and rarely achieve their stated goals. Such policies impede growth, chill investment and—outside of commodities—are overwhelmingly paid for by the importing country. Even on trade deficits, the authors remind us, tariffs have historically had largely insignificant effects. While the evidence on tariffs and their effects on industrialization is more mixed, for every Japan or South Korea—which used barriers to turbocharge manufacturing in the postwar era—there are the smoldering examples of Brazilian personal computers or Indian autos."

Hamilton Was No Protectionist

The first Treasury secretary backed tariffs mostly to raise revenue and promote free trade

By Phil Gramm And Donald J. Boudreaux. Excerpts:

"the 21st century, when the average trade-weighted tariff rate of Organization for Economic Cooperation and Development member countries was below 3% and almost identical to that of the U.S., and the OECD found that the nontariff barriers of U.S. trading partners aren’t significantly higher than America’s nontariff barriers, it’s highly doubtful that Hamilton would support Trump policies."

"It’s true that Hamilton endorsed some elements of the infant-industry argument for tariffs, but he did so because American industry then was indeed in its infancy. America today occupies a completely different position"

"The conditions that led Hamilton to support tariffs have long since disappeared. He never saw protection of domestic manufacturing as a long-term policy but rather insisted that “continuance of bounties on manufactures long established must almost always be of questionable policy.”"

"among the greatest forces fostering U.S. industrialization was its trade deficit and resulting capital surplus"

"Hamilton described net inbound foreign capital as “a precious acquisition . . . a most valuable auxiliary, conducing to put in Motion a greater Quantity of productive labour, and a greater portion of useful enterprise than could exist without it.”"

"the British and Dutch invested heavily in America. They grew wealthy on those investments, and so did America."

"Hamilton knew that high protective tariffs, by discouraging importing and encouraging smuggling, suppressed those [tax revenue] collections."

"From 1816 through 1830, industrial production grew at an average annual rate of 4% as tariffs rose. From 1831 through 1860, industrial production exploded by 6.7% a year as tariffs fell." 

"between 1866 and 1900 average tariff rates fell from 41.8% to 27.6% and industrial production grew at an average annual rate of 5.6%."

"Frank Taussig concluded in 1915, it [industrialization] was fueled by “the intelligence and inventiveness of the people; these being promoted again by the breath of freedom and competition in all their affairs.”" 

The Incidence of the "Liberation Day" Tariffs

From Jeffrey Miron.

"Reporters and economists alike spilled much ink predicting the impacts of Trump’s “Liberation Day” tariffs. New analysis offers clarity on the actual impact of these tariffs.

First,

enacted policies remain much smaller than announced policies. This is a key reason why the price effects of the tariffs remain below many forecasts made in April 2025.

Second,

most of the incidence of recent US tariff hikes has fallen on US consumers. And given the significance of imported inputs in US manufacturing, domestic producers have also shouldered much of the burden.

Third, the tariffs have also

led to striking changes in sourcing patterns. … [For example, t]he share of Chinese goods in US imports collapsed from 22 percent at the end of 2017 to about 12 percent at the end of 2024.

Lastly, while

[e]conomic theory posits that increasing US import tariffs should appreciate the dollar … [it instead] depreciated significantly after the 2025 tariffs. … [This may be because] other policies and macroeconomic forces counterbalanced the effects of tariff hikes on the dollar exchange rate."

Hamilton’s Economic Vision Had One Crucial Blind Spot

Hamilton recognized the importance of manufacturing but overlooked the market processes that create lasting prosperity

By Donald J. Boudreaux. 

"Speaking in January at Davos, US Trade Representative Jamieson Greer said that President Trump’s protectionism revives the policy first proposed by Alexander Hamilton. Like countless attempts to justify US protectionism and industrial policy, Greer’s effort praises Hamilton’s Report on Manufactures (“Report“). 

More recently, Scott Bessent, now holder of a job first held by Hamilton — US Treasury Secretary — also boasted of the administration’s Hamiltonian creed. Given the fame of Hamilton’s Report, and Hamilton’s key role in America’s founding, a close look at his Report is warranted.

Impetus for the Report

Requested by the US House of Representatives in January 1790, Hamilton submitted his Report on December 5, 1791. It was the longest and most famous of four major reports submitted to the House by Secretary Hamilton.

According to Hamilton, the House requested that he devote attention to “the subject of Manufactures; and particularly to the means of promoting such as will tend to render the United States, independent on foreign nations, for military and other essential supplies.” He complied.

America’s Economy Should Have a Strong Manufacturing Sector

The Report opened by making the case that America would benefit from a larger manufacturing sector despite America being unusually rich in land. Without naming Thomas Jefferson, the Report‘s opening was a challenge to Jefferson’s conviction that America should remain a nation mostly of yeomen farmers.

Offering this challenge, Hamilton relied on Adam Smith (also without naming him) to expose the errors of physiocracy — that is, the belief that net economic value is produced only by agriculture. Yet Hamilton went further, arguing that manufacturing can be more productive than agriculture. In making this argument, Hamilton was impressive; one might even sense in it an anticipation of some insights revealed by economists’ marginal revolution of 80 years later.

Regardless of how much or little Hamilton intuited of marginalism, he deserves credit for emphasizing the reality and significance of opportunity costs. To produce some increment of agricultural output requires that some increment of manufacturing output not be produced. And that increment of agricultural output is worthwhile to produce only if its value exceeds that of the foregone manufacturing output. Thus did Hamilton defuse the arguments of persons who believed that, to establish the case for keeping America an agricultural nation, it’s sufficient to point to the positive market value of agricultural output.

In this way, and some others, Hamilton revealed a keen ability to think insightfully about economic matters. Nevertheless, on a full assessment, Hamilton in the Report got more wrong about economics than he got right. Not content to support only the removal of artificial barriers in the US against domestic manufacturing, Hamilton argued strenuously that the government must actively promote American manufacturing. That promotion should consist chiefly of subsidies (“bounties”) supplemented by protective tariffs.

Hamilton Respected But Rejected Adam Smith

The renown of Smith’s Wealth of Nations obliged Hamilton to try to refute Smith’s argument that, in Hamilton’s summary, “industry, if left to itself … without the aid of government will grow up as soon and as fast, as the natural state of things and the interest of the community may require.” For Hamilton, what Smith called “the obvious and simple system of natural liberty” was too simple, at least for a young country without much industry. Here’s Hamilton:

Against the solidity of [Smith’s] hypothesis … cogent reasons may be offered. These have relation to — the strong influence of habit and the spirit of imitation — the fear of want of success in untried enterprises — the intrinsic difficulties incident to first essays towards a competition with those who have previously attained to perfection in the business to be attempted — the bounties premiums and other artificial encouragements, with which foreign nations second the exertions of their own Citizens in the branches, in which they are to be rivalled.

The first-mentioned impediment to American manufacturing was Americans’ alleged lack of entrepreneurship. Habit-bound and excessively risk-averse, too many Americans would stick with familiar agricultural pursuits and refrain from launching new manufacturing endeavors. Further discouraging Americans from venturing into manufacturing were the established competitors abroad who would out-compete upstart rivals. 

For Hamilton, simply being long-established was, in free markets, a nearly insurmountable competitive advantage. But in addition, foreign manufacturers might also practice what we today call “predatory pricing,” as well as enjoy their own subsidies. Therefore, Hamilton believed that manufacturing would arise and thrive in America only if the rates of return on these enterprises were boosted by the government.

Hamilton here forgot his own counsel to attend to opportunity costs. He simply presumed that whatever additional manufacturing activities were encouraged by the government would increase the net value of US economic output. He also ignored both the knowledge problem (How do politicians know which particular industries to encourage?) and the public-choice problem (With subsidies and protection being doled out by politicians, what prevents this doling from being distorted by interest-group politics?).

Hamilton also had a cramped understanding of economic competition. (In fairness, this understanding still infects economics textbooks today.) For him, competition consisted of firms producing a largely given set of outputs with largely identical technologies. Although he can’t be faulted for not reading Joseph Schumpeter’s 1942 work on creative destruction, even in 1791 evidence was growing that the major source of economic growth was entrepreneur-driven creative destruction. Such innovation introduced not only new products, but also completely new and improved means of producing existing products. 

In such an innovative economy, being long-established wasn’t the great advantage that Hamilton assumed it to be. Just ask, for example, the American millers whose traditional manner of milling flour was rendered obsolete starting in the 1780s in Delaware by Oliver Evans‘s automated flour mill.

Hamilton’s Curious Evidence

Attempting to augment his case for active government encouragement of manufacturing, Hamilton offered curious evidence. Responding to opponents who insisted that America’s economy was unfit for manufacturing, he boasted that America’s economy was already demonstrating an impressive ability to support manufacturing.

Writing about the prospects of profitable investment in manufacturing, Hamilton said that “it is certain that the United States offer a vast field for the advantageous employment of capital; but it does not follow, that there will not be found, in one way or another, a sufficient fund for the successful prosecution of any species of industry which is likely to prove truly beneficial.” He continued: In addition to America’s “multiplying” banks, another ready source of funding for manufacturing was foreign capital, which he wisely welcomed as “a precious acquisition.” Indeed, “the attraction of foreign Capital for the direct purpose of Manufactures ought not to be deemed a chimerical expectation. There are already examples of it.”

Question for Hamilton: If it was certain that the US offered vast opportunities for profitable investments in manufacturing, and if such investment was already occurring, why did such investment need to be further stimulated by the government? Hamilton’s inconsistency is evident.

Another example of Hamilton’s inconsistency is worth mentioning. When he argued for subsidies and protective tariffs for goods produced with iron, his evidence for the worth of such government assistance was the fact that such manufacturing had significantly grown in the US since the American Revolution and was flourishing. His argument was that this industry deserved protection precisely because it had proven itself capable and successful. Presumably, Hamilton would defend this inconsistency by maintaining that, without government assistance, this industrial growth — and that of other critical manufacturers — would stop short of its optimal point.

Here’s where Hamilton-as-economist faltered most seriously. He made the incorrect presumption that markets fail to generate optimal economic growth because, in the end, he didn’t appreciate just how effectively resources are allocated by market signals and incentives — by competitively determined prices, profits, and losses. 

At least for fledgling nations with relatively little industrial capacity, he believed that intervention from the top was required.

The Lasting Lesson

Studying the Report on Manufactures makes clear that Hamilton, contrary to the assertions of Greer and Bessent, was far from being a protectionist in the mold of Donald Trump. 

Not only was Hamilton’s case for protection confined to the need to stimulate industrial capacity in a country lacking such capacity, he also preferred subsidies over tariffs (because tariffs, unlike subsidies, reduce supplies of targeted goods), and he welcomed, rather than bemoaned, net inflows of foreign capital. 

Nevertheless, Hamilton ultimately had too little confidence in free markets. The late Gordon Wood’s assessment of Hamilton-as-economist is accurate:

Hamilton was so wedded to a hierarchical view of society that he could only imagine industrial investment and development coming from the top down. Thus he was incapable of foreseeing that the actual source of America’s manufacturing would come from below, from the ambitions, productivity, and investments of thousands upon thousands of middling artisans and craftsmen who eventually became America’s businessmen. Hamilton’s historical reputation as the prophet of America’s industrial greatness therefore seems somewhat exaggerated. He certainly wanted a powerful and glorious nation, but he was no more capable of accurately foretelling the future than the other American leaders."

Don Boudreaux on Miran on Tariffs

See Musing on Miran. 

"Here’s a letter to the Wall Street Journal.

Editor:

Stephen Miran attempts to justify Trump’s tariffs by insisting that these levies will shift much of Americans’ tax burden onto foreigners and thus enable significant cuts in distortionary domestic taxes (“The Low-Tax Case for Tariffs,” June 27). His case, alas, is a string of howlers.

Consider, for example, his mention of the Congressional Budget Office’s estimate that Trump’s tariffs will raise $4 trillion over the next decade (and overlook the fact that this average annual amount of revenue is a paltry 5.4 percent of current U.S. government spending). Not only does the CBO’s estimate ignore the tariffs’ negative impact on economic growth, most of those tariff revenues will be paid by Americans. Mr. Miran conveniently leaves unmentioned the overwhelming amount of empirical research showing that foreigners are paying only a tiny fraction of Trump’s tariffs – by one credible estimate only four percent.

It must also be said that the greater the burden of the tariffs that is shifted to foreigners, the lesser are the price increases that Americans pay for imports and, hence, the more muted are the tariffs’ protective effects. Yet these protective effects are ones that Mr. Trump and other tariff supporters, including Mr. Miran, routinely cite as core justifications for the tariffs.

This inconsistency in his case for tariffs is itself sufficient to discredit all that Mr. Miran says on the matter."

U.S. Airlines and Carmakers Need to Go Global

Policies that insulate them from competition created the conditions that led to bailouts and bankruptcies

By Clifford Winston of the Brookings Institution. Excerpts:

"While we rightly celebrate the 1978 Airline Deregulation Act, airports and foreign competitors that could serve U.S. routes weren’t deregulated. Public airport monopolies and duopolies allow airlines to raise fares. With foreign carriers prohibited from flying domestic U.S. routes, domestic fares have been kept artificially high even while load factors approached 85% just before the Iran war. As a result, when a domestic shock hits, the system lacks the diversified global networks and capital depth needed to absorb the blow.

The car industry suffers from a similar condition. While the automakers aren’t currently liquidating, they are operating on a margin-over-volume strategy that has pushed the average transaction price of a new car to a record $50,000. This wasn’t a natural market evolution. It was manufactured by decades of trade barriers.

From the 1964 “Chicken Tax” to the 100% tariffs on Chinese electric vehicles in 2025, Washington has walled off the American consumer. These barriers have allowed domestic makers to abandon the low-cost econobox segment entirely, focusing instead on $80,000 SUVs. Because they are shielded from the $15,000-a-car global competitors that are modernizing fleets in Europe and Asia, automakers have become addicted to a narrow, affluent demographic."

 

Globalization’s Overlooked Economic Benefits

Antiglobalist ideas have motivated many Trump voters, but free trade benefits the average American

Letter to The WSJ.

"In his column “What Happened to the Pragmatic Trump of the First Term?” (Editor At Large, May 5), Gerard Baker wisely decries President Trump’s second-term pursuit of a misguided and extreme ideological agenda. Mr. Baker points out that antiglobalist ideas motivated voters in 2016—views that globalism “facilitated mass migration and the elevation of international capital that ravaged communities at home.”

A better name for “the elevation of international capital” is “free trade.” This term reveals the increased freedom of ordinary people to spend their incomes as they choose, while avoiding the mistaken suggestion that lowering trade barriers benefits only Davos-vacationing capitalists at the expense of the masses.

And where are these “ravaged communities at home” that voters were so worried about? Politicians and pundits still talk incessantly about these communities, but scholars who make serious attempts to locate them encounter difficulties. Economist Jeremy Horpedahl studied the 10 metropolitan statistical areas in the U.S. that suffered the largest negative hits during the infamous “China Shock” of the early 2000s. According to Mr. Horpedahl, all of the metropolitan statistical areas “hit hard by the China Shock still managed to have significant and positive real wage growth across the distribution since 2001 . . . Wage gains in several of these places, in fact, are better than the national trends.”

Whenever economic change occurs, some particular workers lose jobs, and some particular locations lose business and population. Economic growth requires economic change and adjustment. This has always been and will continue to be the case. But the story of America is that ordinary people recover over time and become wealthier. It’s an error to single out the freer trade of the past few decades as a unique source of economic change that justifies greater skepticism of globalization.

Prof. Donald J. Boudreaux

George Mason University

Fairfax, Va." 

The AI Boom Is Being Fueled by Imports—and Free Trade

By Scott Lincicome, Alfredo Carrillo Obregon, and Chad Smitson of Cato.

"Data published today by the US Bureau of Economic Analysis show that domestic investment in artificial intelligence is currently acting as a massive tailwind for US economic growth (gross domestic product). The data also show that this American investment boom is being fueled by imports of the servers and other things that datacenters and related AI technologies need:

 

Separate data show, moreover, that imports of these AI-related inputs are entering the country almost entirely free of tariffs, thanks in large part to a mid-2025 decision by President Trump to exempt these items from his global tariff regime:

 

Surely, the AI boom isn’t solely due to free trade, and we wouldn’t expect it to cause every other US industry to boom like AI is today. But one still must wonder how many other American industries might similarly benefit from the same “special” treatment that the AI industry enjoys today—i.e., the treatment almost every industry received before the Trump tariff wall was erected last year." 

Tariffs Have Long Been a Corruption Magnet

Transparency is a hallmark of good tax policy; opacity is its enemy

Letter to The WSJ. 

"Paul Rahe’s justifications for tariffs fail under scrutiny (“There’s a Case for Tariffs,” op-ed, April 16).

Mr. Rahe assumes tariffs boost resiliency, but recent history shows the opposite. National security might justify narrow trade restrictions, but tariffs have not insulated Americans from economic disruptions and have frequently made things worse. The baby-formula crisis of 2022 and automakers’ recent struggles to obtain aluminum, each triggered by the sudden closure of a tariff-protected U.S. factory, show that localized supply chains are vulnerable to local shocks—and tariffs block alternatives. Research from the pandemic finds that globalized supply chains performed better and adjusted faster than nationalized ones.

Mr. Rahe also errs on tariffs’ ability to promote manufacturing. Decades of protection failed to create thriving U.S. steel, shipbuilding, textile and footwear industries. More recent duties on solar panels did the same. With around half of imports being manufacturing inputs, tariffs raise American producers’ costs and undermine competitiveness. Combined with uncertainty surrounding executive branch tariffs, this explains why surveys consistently reveal manufacturers opposed to new protectionism.

Mr. Rahe is correct about the intrusiveness of income taxes, but tariffs can’t replace them because import volumes are far too small. Their invisibility, meanwhile, isn’t the benefit Mr. Rahe thinks. Since the 19th century, tariffs have been a breeding ground for rent-seeking and corruption and have persisted after decades of failure, precisely because their costs are hidden and diffuse. Transparency is a hallmark of good tax policy; opacity is its enemy.

Alfredo Carrillo Obregon and Scott Lincicome

Washington

Mr. Carrillo Obregon is a trade policy analyst and Mr. Lincicome is vice president for economics and trade at the Cato Institute" 

Understanding Tariffs and Their Trade-Offs

Although the economy was severely damaged during the pandemic, the culprits were price controls and lockdowns

Letter to The WSJ. 

"Flaws mar Paul Rahe’s op-ed arguing that, in a world subject to war and other disruptions, tariffs can protect an economy’s resilience (“There’s a Case for Tariffs,” April 16). It’s untrue that the pandemic showed that, with free trade and global disruptions, “supply chains collapse.”

Although America’s economy was severely damaged during the pandemic, the culprits were price controls and lockdowns. Yet despite these obstructions, as Scott Lincicome explains, “a December 2020 U.S. International Trade Commission (ITC) report found that U.S. manufacturers and global supply chains responded quickly to boost supplies or make new drugs, medical devices, PPE, cleaning supplies, and other goods, and that the pharmaceutical, medical device, N95 mask, and cleaning products (including hand sanitizer) industries were particularly ‘resilient’ (in the ITC’s own words).”

Economically, tariffs can’t increase the domestic capacity to produce particular goods without decreasing the domestic capacity to produce other goods. Because private businesses themselves have strong incentives to assess accurately the risks of global disruptions and optimally diversify their sources of supply to minimize supply-chain troubles, tariffs likely create excess capacity in protected, politically powerful industries as they drain resources away from other, politically weaker industries. This political determination of which industries are essential and which aren’t weakens the economy’s ability to respond effectively to global shocks.

Prof. Donald J. Boudreaux

George Mason University" 

America Is in the Middle of a Stealth Manufacturing Boom

Factory jobs are down, but factory output has risen briskly. Credit goes not to tariffs, but to the most basic economic force of all: demand

By Greg Ip. Excerpts:

"Since January 2025, manufacturing jobs have indeed fallen by about 100,000 workers, or roughly 0.6%. In the same period, though, manufacturing production rose 2.3%, and manufacturing shipments, unadjusted for inflation, climbed 4.2%."

"several sectors that where domestic production was strong, so were imports. Where production was down, so were imports."

"domestic production of computer and electronic products last year was up 7.7%. (All its figures are from the fourth quarter compared with a year earlier.) But imports in this sector were up even more, by 40.5%."

"Behind this: an artificial intelligence revolution"

"Aerospace and transportation equipment (which excludes trucks and cars) also boomed last year, with domestic output up 28%."

"Now consider motor vehicles and parts, around which Trump erected steep tariff barriers. Imports duly fell 14%. But domestic output also dropped 3%. In furniture and related products, imports were down 22% while domestic output fell 3%. Relatively high interest rates last year were likely a factor."

"Production of primary metals, including steel and aluminum, did benefit from tariffs which are now as high as 50%. Production rose, and imports fell. With prices well above global levels, capacity utilization, profits and investment should all rise. But Trump’s first-term tariffs didn’t yield sustained prosperity. Even now, primary metals production is more or less back to 2023 levels"

"Food and beverages contribute the largest share of domestic manufacturing output at 18%."

"Foreign competition isn’t that consequential. And production last year was basically flat."

"production can rise simply because existing factories are ramping up capacity. But durable improvement requires investment in new capacity, which is visible in semiconductors, pharmaceuticals and aerospace. If tariffs have led to new investment, the effect on production might not show up for a while." 

The WTO Isn’t Dead, but America Is Breaking It

Reform can’t happen if the U.S. keeps pretending it didn’t help cripple the institution it’s now eulogizing

Letter to The WSJ. 

"Jamieson Greer’s frustration with the World Trade Organization is understandable, but his op-ed ignores how the U.S. unwisely accelerated the organization’s decline (“Another Fish Story From the WTO,” April 8).

The American middle class has prospered in the era of open trade, and U.S. manufacturing job declines—driven mainly by productivity gains—long predate China’s WTO accession. The U.S. was the WTO’s chief architect and reaped significant economic and geopolitical value from the system. Its retreat, which began before the administration, ignored these realities and instead prioritized U.S. farm subsidies and trade remedies, often resisting the disciplines Washington demanded of others.

Fealty to these and other insular political issues stymied multilateral negotiations and motivated four separate U.S. administrations to neuter the WTO dispute settlement by blocking Appellate Body appointments. Washington’s participation in disputes has also ground to a halt. You can’t complain about the rules of the game after you stop playing and strangle the referee.

Worst of all, the U.S. has been a bad-faith abuser of the rules it helped write, blowing through tariff bindings and invoking narrow WTO exceptions for national security and balance-of-payments crises to maintain President Trump’s global tariff wall.

Mr. Greer is right to decry the WTO’s consensus problem and the abuse of certain rules by other WTO members. The institution does need reform. But members’ continued participation shows the institution isn’t dead. And reform can’t happen if the U.S. keeps pretending it didn’t help cripple the institution it’s now eulogizing.

Clark Packard and Scott Lincicome

Washington

Mr. Packard is a trade policy fellow and Mr. Lincicome is Vice President for Economics and Trade at the Cato Institute."

‘Liberation Day,’ One Year Later

Trump’s tariffs didn’t spur economic growth but did encourage trade between spurned U.S. partners

By Phil Gramm and Donald J. Boudreaux. Excerpts:

"our trading partners  . . . pivoted toward other trading partners"

"they have mutually lowered barriers and increased trade with each other" 

"“the world [is] . . . reglobalizing around partners who commit to rules" 

"U.S. households, denied access to the lowest-priced goods on global markets, will have less purchasing power"

"tariffs will also make American goods less competitive globally and more expensive at home" and 

"raise the prices of inputs used by U.S.-based producers"

"more than half of U.S. imports are inputs used in producing goods and services in America"

[Tariffs] "divert capital and labor away from uses that would have yielded higher returns to capital and higher wages for workers" 

"in 2025 the three major U.S. stock indexes underperformed"

"2025’s 1.2% increase in inbound foreign direct investment was considerably less than the 2.7% increase in 2024 and the 7.6% increase in 2017, the first year of Mr. Trump’s first presidency"

"Real gross private domestic investment last year grew by only 2% after growing in 2024 by 3% and 4.4% in 2017"

"Real U.S. gross domestic product grew by only 2.1% in 2025, compared with 2.8% in 2024 and 2.5% in 2017"

"job growth in 2025, at 0.5%, was slower than job growth of 1.2% in 2024 and 1.6% in 2017"

"in 2025 the pace of losing manufacturing jobs accelerated to 1.2%, faster than the decline in 2024 of 0.7%. In 2017 manufacturing jobs actually increased by 0.7%" 

Taxing Medicines Is Bad Medicine

By Michael F. Cannon.

"President Trump has announced he will impose a 100 percent tax (tariff) on imports of both on-patent medicines and active ingredients for domestic production of such medicines. He will lower the tax rate to 20 percent if the manufacturer presents the administration with a plan to relocate the manufacturing to the United States. He will further knock the tax rate down to 0 percent if the manufacturer also submits to the president’s price controls.

The president has determined that the patented medicines and the active pharmaceutical ingredients that go into the domestic production of on-patent medicines “are being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.” A foreign spy is a threat to national security. The medicine that cured your kid is not. 

This tax scheme will make US citizens poorer and make critical medicines—for “cancer, rare diseases, autoimmune disorders, infectious diseases, and other critical health challenges”—more expensive and scarce. It will raise prices on many of the 53 percent of on-patent drugs that US buyers purchase from abroad and raise prices for many of the rest by increasing input prices. 

The new taxes will increase prices for insulins, statins (e.g., Atorvastatin, the single most frequently prescribed drug in the United States), some second-generation antihistamines, pain-relieving opioids, pseudoephedrine, monoclonal antibodies (which treat cancer, autoimmune disorders, and other diseases), and antidepressants. The last time the federal government imposed unnecessary restrictions on non-sedating second-generation antihistamines, those restrictions caused airplanes to fall from the sky. 

If producing these drugs and inputs domestically could deliver the same or greater quantity and/​or at the same or lower cost, manufacturers would already be doing so. The fact that the president must force them to do it indicates that domestic production will be costlier and will make these medicines more expensive and scarce. Even where manufacturers fully comply and avoid the administration’s explicit taxes, consumers will still pay a hidden tax in the form of higher prices for medicines and health insurance."

Every President Tries It. It Never Works. (to increase manufacturing jobs)

By Jason Furman. Excerpts:

"In a full accounting, during the first full month of his second term, the United States lost 2,000 manufacturing jobs. Losses continued almost every month, totaling 100,000 manufacturing jobs since January 2025."

"In his 2024 State of the Union address, President Joe Biden declared, “We’ve got 800,000 new manufacturing jobs in America and counting.” The next morning the Bureau of Labor Statistics announced that the economy had lost 4,000 manufacturing jobs the previous month. More losses followed, in almost every subsequent month of Mr. Biden’s presidency, totaling 202,000 in his last year. The 800,000 new jobs he exulted in were not the beginning of a sustained recovery of manufacturing but rather the return of some of the 1.4 million positions lost during the Covid pandemic."

"Reversing the loss of manufacturing jobs is extremely hard — and not necessarily desirable."

"Manufacturing job share has been dwindling in nearly all middle- and high-income countries. By one analysis, China lost more than 30 million of those jobs from 2011 to 2020, more than twice as many as the number of jobs that exist in the entire U.S. manufacturing sector. Yet total employment continued to grow"

"Manufacturing output, meanwhile, has risen, because workers now produce far more per hour using better and more sophisticated equipment. Today a given number of autoworkers can make, according to my calculations, three times as many cars in a year as they could 50 years ago.

The problem is that consumers do not want three times as many cars. Even as people get richer, they increase their spending on manufactured goods only modestly, preferring instead to spend more on services like travel, health care and dining out. There are only so many cars a family can own, but that’s not the case for expensive vacations or fancy meals. As a result we have fewer people working in auto factories and more people working in luxury resorts and the like.

These forces — rising productivity but steady demand — explain why the United States was losing manufacturing job share as far back as the 1950s and 1960s, long before trade became a major factor. The downward trend changed little after the U.S. entered NAFTA in 1994 or granted permanent normal trade relations to China in 2000. Economists continue to debate the magnitude of the “China shock,” but though it hit some regions harder than others, much of the research suggests that overall, it was responsible for a small fraction of the total manufacturing jobs lost since then."

 

"When governments try to reverse the trend, they mostly succeed only in shifting jobs from one industry to another rather than expanding manufacturing overall. Tariffs on steel, for example, may protect jobs in steel production, but they cost jobs in downstream industries such as automobiles by raising costs and undermining global competitiveness.

Subsidies for targeted industries — Mr. Biden’s preferred approach, particularly for microchips and green energy — have similar trade-offs. They help the favored industries but they also drive up construction and equipment costs across the board, making it harder for companies in other arenas to compete. So instead of creating more jobs overall, the subsidized industries just crowd out unsubsidized ones.

Efforts to revive manufacturing are rooted in nostalgia. Once upon a time, manufacturing jobs provided a reliable pathway to the middle class, offering a wage premium to workers without a college degree. In 1970, roughly 80 percent of manufacturing workers had no more than a high school education. Today that figure is closer to 40 percent.

Manufacturing jobs also used to pay more than nonmanufacturing jobs with similar skill requirements. Not anymore: Today people in nonmanagerial manufacturing jobs average $30 an hour as compared with $32 for truck drivers, $33 for wholesale trade workers and $38 for construction workers. Trying to push more people into manufacturing jobs is therefore more likely to harm the middle class than help it."

Related post:

The manufacturing delusion? (2023) This has an article by Christina Romer that makes points similar to Furman's

Our Trade With China Has Helped Americans

Tens of millions of U.S. households gained from lower prices for shoes, clothing and other household necessities

Letter to The WSJ. 

"In his review of “Red Dawn Over China,” (“A Maoist Myth Debunked,” Books, Feb. 14), Tunku Varadarajan asserts that China’s admission to the World Trade Organization in 2001 had “devastating consequences for every economy except China’s own. (Thank you, Bill Clinton.)” The facts say otherwise.

It’s true that the U.S. economy shed a net five million manufacturing jobs in the years that followed, but even the “China shock” analysis attributes only one million of those to expanding trade with China. Most of the rest were lost due to automation and productivity gains. Meanwhile, tens of millions of U.S. households gained from lower prices for shoes, clothing and other household necessities. The painful recessions of 2001-02 and 2008-09 were homegrown.

If Congress had rejected the accession protocol negotiated by the Clinton administration in 2000, China would likely have joined the WTO anyway, but U.S. companies would have lost out on the increased market access it required. From 2001 to 2017, before the Trump trade wars began, the average duty China applied to goods imported from the U.S. dropped from 25% to 7%. U.S. exports to China during that time grew eight-fold and sales by U.S. majority-owned affiliates in China soared more than 10-fold—totaling more than $500 billion annually.

Trade with China has been tough on certain U.S. companies, but for most Americans—including farmers, high-tech exporters and consumers—the consequences have been positive.

Daniel Griswold" (retired from Mercatus)