US President Donald Trump has long been a staunch advocate of import tariffs, proudly calling himself "Tariff Man" and asserting that tariff is "the most beautiful word in the dictionary."
Defenders of Mr Trump's trade policies argue that his tariff threats are merely a negotiating tactic and will ultimately benefit the US economy. But his recent actions -- including his plan to impose "reciprocal" tariffs, matching those imposed by other countries on US goods -- suggest that, unlike in his first term, he is fully committed to his protectionist trade agenda.
Mr Trump's ultimate goal, however, remains unclear. He seems to have embraced the deeply misguided idea that imports are inherently harmful.
From a global perspective, tariffs mostly do more harm than good. The reality is that tariffs raise costs and lower the quality of domestic production, undermining the very economies they are meant to protect.
Consider, for example, shipbuilding. Constructing an average-sized ocean-going ship costs 4-6 times more in the US than in Japan or South Korea. A ship that costs US$55 million to build in China would cost $333 million in the US. While some may justify these cost differences on national-security grounds, one must wonder: Wouldn't the US Navy be far stronger if it could acquire four times as many ships by purchasing them abroad?
Many Trump supporters wrongly believe that America's trading partners will bear the brunt of his tariffs. In reality, the economic burden on the US will be even greater. In addition to the prohibitively high cost of replacing imports with domestic production, retaliatory tariffs are bound to drive up the cost of imported goods.
With roughly two-thirds of US imports consisting of raw materials essential for domestic manufacturing, manufacturers now face the prospect of rising costs for critical inputs. Many are already scrambling to secure alternative suppliers -- often at higher prices -- or stockpiling to hedge against future disruptions.
Compounding these challenges, shipments already en route to the US face potential delays and higher customs duties. Consequently, companies are putting off investment decisions, waiting for greater clarity before committing to long-term plans.
This policy uncertainty is taking a particularly heavy toll on domestic industries that rely on foreign producers.
Higher input costs inevitably lead to job losses in industries that rely on those materials. Mr Trump's tariffs are already upending the US auto industry, potentially driving up the price of each new car by thousands of dollars. And since building a new auto assembly plant in the US could take up to seven years, a significant increase in domestic production remains years away.
These disruptions could have far-reaching macroeconomic consequences. Consumer confidence in the US has plummeted to its lowest level since 2022, driven largely by fears that Mr Trump's protectionist policies will boost inflation. Meanwhile, his trade war has triggered a stock-market selloff, as investors worry about its impact on domestic industries and the potential loss of key trade partnerships.
Ironically, Mr Trump's promises to curb inflation played a major role in his election victory. But as economists Mickey D Levy and Michael D Bordo note, higher tariffs will have the opposite effect -- slowing economic activity, increasing unemployment, and driving consumer prices even higher.
Unsurprisingly, the outlook for the US economy is growing increasingly bleak. The OECD recently revised down its US growth forecasts, warning that "trade conflict" could stifle economic activity and lead to higher inflation. US growth is now expected to slow from 2.8% in 2024 to 2.2% in 2025 and 1.6% in 2026. The outlook for Canada and Mexico -- the primary targets of Mr Trump's tariffs -- is even more dire, with Canadian growth projected to slow to 0.7% and Mexico potentially entering a recession.
But the consequences of Mr Trump's reckless trade war extend far beyond North America. The OECD also adjusted its global growth forecast, predicting a slowdown from 3.2% last year to 3.1% in 2025 and 3% in 2026.
Whether this trend can still be reversed is unclear. The uncertainty caused by Mr Trump's policies could push the US into recession -- a scenario that appears increasingly likely -- while retaliatory measures by other countries will compound the damage. Given the growing risk of further escalation, the OECD's projections may, in hindsight, prove woefully optimistic. ©2025 Project Syndicate
Anne O Krueger, a former World Bank chief economist and former first deputy managing director of the International Monetary Fund, is Senior Research Professor of International Economics at the Johns Hopkins University School of Advanced International Studies and Senior Fellow at the Center for International Development at Stanford University.
