Trump is betting on tariffs to boost the U.S. economy. But his policies are based on outdated notions of self-sufficiency
By Roslyn Kunin
Make America Great Again. That is what U.S. President Donald Trump and his supporters hope and expect. The slogan suggests a return to a supposedly better past—economically, politically or socially. However, they do not realize that America is already doing well.
The United States remains the largest economy in the world. It has a standard of living that much of the world envies. Over the past decade, the American gross national product has been growing at more than three per cent annually, though it slipped just below the three per cent mark in 2024. This is impressive for an industrial economy. The euro area grew by less than one per cent last year, while Canada grew by less than two per cent.
Nevertheless, Trump supporters feel hard done by and are seeking remedies for problems that do not exist. Their weapon in this struggle is tariffs—taxes on imported goods intended to protect domestic industries. Recent research shows that 60 per cent of Americans fear tariffs and the resulting trade wars will do more harm than good. Almost one in three American households has stocked up on toilet paper in anticipation of supply disruptions.
The worriers have reason on their side. Tariffs on imports reduce incoming supplies of both consumer goods and industrial inputs. Prices go up, and both the quantity and quality of available goods decline. Export markets fall away as countries whose exports are hurt by tariffs retaliate by shunning imports from the United States.
Why, then, would anyone impose tariffs? Trump expects two benefits from them. He is misguided on both.
Trump wants lower income taxes. He realizes that governments need money and hopes to replace income tax revenue with receipts from tariffs. He looks back to the time before the First World War, when there were no income taxes and tariffs were the main source of government revenue. He hopes to return to that situation.
However, he forgets that the world has changed drastically since 1910. At that time, government played a minor role. There were no pensions, no publicly funded health care, no unemployment insurance and no welfare payments. Military expenditures focused on the cost of rifles and bullets, not $2-million missiles and $2,000 drones. Society’s requirements of governments in areas such as communication and safety barely existed 100 years ago but are vital now. Additionally, the economy was largely domestic at that time, meaning tariffs had a far different impact than they would in today’s globally connected marketplace.
Trump also forgets that as tariffs rise, imports of the affected goods decline, leaving fewer items to tax.
Another benefit Trump anticipates from tariffs is significant job creation in the U.S., particularly in manufacturing. He looks back to the 1950s, when manufacturing sectors employed large numbers of semi-skilled workers at good wages to produce cars, appliances and other goods.
Will tariffs bring manufacturing back to the U.S.? Probably not to a large extent. Private sector investment would be needed. Business leaders may hesitate to invest large sums when government policy is so changeable and unpredictable. They may be concerned about importing the required supplies at affordable prices given tariffs, as well as access to export markets. They may also be aware of the time factor. Significantly increasing American capacity in areas such as steel and aluminum production would take longer than Trump’s expected time in office.
Jobs in manufacturing no longer resemble those in 1950s car plants. There are significantly fewer of them. Some appliance producers have already moved back to the U.S. because labour now makes up only about 10 per cent of their costs.
Even before the widespread introduction of artificial intelligence, it is robots, not people, that make the cars. The workers needed in factories are those who can design, program, maintain and repair automated systems. There are not too many of those in the American labour force, and they are not the ones who are unemployed. Globalization and automation have permanently altered the landscape of manufacturing, making a return to the past unrealistic.
Under the current uncertain conditions, it is hard to make an economic forecast. However, with Trump’s tariffs on Canada and Mexico now in effect, the consequences of his trade policies will soon become evident. North America’s supply chains are deeply integrated, and these tariffs will disrupt industries on both sides of the border. The U.S. will likely face a decline in its currently healthy growth rate, possibly all the way down into recession. Prices will rise, adding inflation to its economic woes.
Already, pressures are beginning to be felt. One example: farmers, many of whom supported Trump, are beginning to wonder whether they will be able to find and afford fertilizers for this year’s crops. Much of their fertilizer comes from Canada and would be blocked by a tariff wall. Likewise, manufacturers in the auto and steel industries are bracing for higher costs and potential job losses as supply chains are disrupted.
Canadians should not waste too much sympathy on the plight in which Americans are going to find themselves. With our much more trade-dependent economy and our large reliance on the U.S., Canadians will be more vulnerable to the negative impact of tariffs than Americans. Steps are now being discussed to reduce this dependence. However, the immediate effects will be felt in key industries, including automotive, agriculture and manufacturing.
Apart from that, we can only wait for Americans to foresee—if not actually experience—the harm of what they are doing and take steps to make some changes. Economic interdependence is a reality of the modern world, and policies based on outdated notions of self-sufficiency risk harming both the U.S. and its closest trade partners.
Dr. Roslyn Kunin is a respected Canadian economist known for her extensive work in economic forecasting, public policy, and labour market analysis. She has held various prominent roles, including serving as the regional director for the federal government’s Department of Employment and Immigration in British Columbia and Yukon and as an adjunct professor at the University of British Columbia. Dr. Kunin is also recognized for her contributions to economic development, particularly in Western Canada.
The views, opinions and positions expressed by all columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of NetNewsLedger.
