Article I, Section 8 of the U.S. Constitution gives Congress the sole authority to impose tariffs. However, since the mid-1930s, through the passage of various statutes, Congress has delegated a significant amount of that authority to the President. It is now the President, not Congress that leads our country in establishing tariff policy.
President Trump has made it clear that he sees value in significantly increasing tariffs in order to achieve multiple policy objectives. These objectives include:
Increasing government revenues; stopping the illegal movement of immigrants and drugs across our borders; maximizing his political dominance over the countries whose borders we share; equalizing reciprocal tariffs so that foreign companies do not have an unfair advantage in their home countries; bringing back employment opportunities for American workers, especially in the manufacturing sector; and protecting certain industries, such as steel and aluminum, from overseas competition.
One objective that is noticeably missing is the historical use of tariff policy to encourage other countries to politically align themselves with the United States. Trump is an isolationist and encouraging closer relations with other countries, including those on his own continent, does not appear to interest him.
A costly reduction
Even if President Trump has some success in achieving one or more of these objectives, the overall reduction in international trade will cost us dearly.
Having a low tariff policy, even if we run large trade deficits with our largest trading partners, allows us to import those goods and services, including a large amount of supply chain inputs, that can satisfy our wants and needs.
As explained by Nobel Prize winning economist Milton Friedman: “The gain from foreign trade,” our automobiles, computers, pharmaceuticals, cell phones, raw materials, component parts, etc., “is what we import. What we export," our raw materials and the goods and services we produce with our labor "is the cost of getting those imports.”
This understanding makes clear what our nation’s international trade objective should be: “The proper objective for a nation, as Adam Smith put it, is to arrange things so we get as large a volume of imports as possible for as small a volume of exports as possible.”
Tariffs, by increasing the cost of imports, interferes with the objective of “getting as large a volume of imports as possible for as small a volume of exports.”
Having multiple objectives that require higher tariffs run counter to Mr. Friedman’s sole objective. Moreover, trying to achieve one or more of the other objectives at the same time will have unintended consequences.
Unintended consequences
For example, raising tariffs in order to bring back manufacturers jobs home will have a negative impact on our supply chains and therefore constrain domestic employment and output.
This is because supply chain inputs, such as capital goods (approximately $1 trillion worth, excluding automobiles), account for approximately 75% of U.S. imports. If tariffs raise the prices of those imports, the production of many final products may no longer be economically viable, and the industries that import and produce them will lose work and therefore jobs.
For example, the CEO of Alcoa recently stated that President Trump's proposed 25% tariff on aluminum imports will lead to a loss of 100,000 U.S. jobs. To make matters worse he does not expect these tariffs to result in any increase in domestically produced aluminum.
Higher tariffs as a means to raise revenues may also invite a trade war where the sale of our exports will be blocked by retaliatory tariffs and quotas. This will also have a negative impact on U.S. employment levels.
Implementing a Rational Approach
The first thing Mr. Trump must do is to determine the primary objective of his tariff policy. That objective should be “getting as large a volume of imports as possible for as small a volume of exports.” Without always having his eye on this objective, the President may inadvertently kill the golden goose that international trade provides.
He should then think of his other objectives as constraints on this primary objective. For each constraint he can then ask himself how much in imports he believes Americans should forego and other costs Americans will endure in order to meet that constraint. This process will help him visualize the trade-offs he is making.
Reducing risks
To minimize the risk of harmful results, the President should reduce the number of objectives he is trying to achieve through his tariff policy. This will reduce the risk of unintended consequences.
He can also choose objectives that support each other. For example, threatening retaliatory tariffs if other countries do not reduce their tariffs to match ours. Successful negotiations may eventually lead to the lowering of reciprocal tariff rates that not only match but go below our current tariffs.
If President Trump is not able to properly manage his tariff policy, a significant reduction in the economic benefits we receive through international trade will be the result. This may require Congress, no matter how reluctant, to take the necessary actions to reduce the President's tariff authority. However, it may take months or even years for new legislation to be passed. In the meantime, both our economy and people will surely suffer. We can only hope for the best.
An earlier version of this writing appeared in the Pittsburgh Post-Gazette on Feb. 26, 2025.
