The prevailing discourse surrounding U.S. tariffs often centers on economic resilience, suggesting the nation can withstand the immediate shock of increased import duties. However, this perspective crucially overlooks the profound, long-term implications of such a trade policy on the US economy and its standing within the global trade order. While outright economic collapse may not be imminent, the subtle erosion of power and sustained underperformance represent a significant, often unacknowledged, cost of protectionist measures.
Historically, economic thought, exemplified by Adam Smith, has underscored the inherent benefits of free trade. Today’s resurgence of mercantilist tendencies directly challenges this established wisdom. Despite claims of national resilience, economists largely concur that disrupting established international trade frameworks, even without catastrophic immediate effects, ultimately leads to slower growth and economic inefficiency, a stark contrast to the sustained gains fostered by open markets.
The complexity of trade barriers is highlighted by recent research. For instance, the Federal Reserve meticulously modeled the potential economic impact of a substantial 60 percentage point increase in U.S. tariffs on imports from China, alongside a baseline 10% tariff on other trading partners. These scenarios explored outcomes both with and without changes to the existing trade deficit, revealing the intricate web of economic adjustments that occur.
Counterintuitively, tariffs do not guarantee a reduction in the trade deficit. Economic models suggest that a smaller deficit could lead to an appreciating dollar, which subsequently increases imports and diminishes exports, effectively neutralizing the initial intended effect. Furthermore, the overall external balance fundamentally stems from the gap between national savings and investment, an equilibrium only indirectly influenced by direct trade policy interventions.
The potential costs of a significantly closed economy, or autarky, are also often underestimated. While early estimates might suggest modest GDP losses, these calculations often assume a consistent ease of substituting domestic goods for imports. Should an economy move closer to self-sufficiency, this “elasticity of substitution” could dramatically decline for critical foreign products, rendering the true cost of abolishing imports far greater than initially projected and severely impacting the US economy.
Despite the intricate economic dynamics and varying projections, a fundamental consensus remains among economists: international trade consistently delivers net gains. Even if the gains for a large, resource-rich nation like the United States are proportionally smaller compared to other economies, these benefits are undeniably positive. Therefore, the core principle should be to avoid suppressing trade, rather than debating the precise magnitude of its costs.
Beyond economic calculations, the most significant costs associated with the new wave of mercantilism lie in geopolitical dislocation. The deliberate dismantling of the established global trade order places immense strain on long-standing U.S.-led alliances and multilateral institutions. While arguments about historical free-riding might hold some truth, on balance, American global leadership through these arrangements has served its enlightened self-interest.
Ultimately, the strategy of casting away American power by portraying the existing global trade order as exploitative retribution against “selfish friends” is fundamentally misguided. Pursuing such a trade policy for negligible economic benefits, or worse, in exchange for substantial economic losses, is not just poor policy; it represents a profound strategic miscalculation with far-reaching consequences for the US economy and its global standing.
