An overview of how tariffs work, their benefits and the challenges they present.
All photos by The Epoch Times & Getty Images
By Andrew Moran & Emel Akan Revive Domestic ManufacturingTariffs are intended to protect and expand domestic industries by making imports more expensive and encouraging U.S. companies to produce at home. The United States was once the global leader in manufacturing, but that dominance began to shift in the 1990s with the globalization of supply chains. Many companies opted to move production overseas in pursuit of lower costs. As a result, U.S. manufacturing has fallen from 21 percent to 25 percent of gross domestic product in the 1950s to about 10 percent today. The trend worsened after China joined the World Trade Organization in 2001. Nearly 60,000 manufacturing facilities closed in the United States between 2001 and 2015, erasing 4.7 million jobs.
Boost Manufacturing JobsTariffs can give domestic firms more room to grow, invest in equipment, and increase their workforce. As production has shifted overseas, U.S. manufacturing employment has steadily declined—from about 17 million jobs in the 1990s to 12.7 million today. Know-how and expertise have also migrated overseas. The trend has adversely affected many towns across the Rust Belt, creating an economic climate of rising joblessness, wage stagnation, and drug addiction. By implementing tariffs and encouraging domestic production, policymakers believe that they can revitalize those communities. However, some say that reshoring production will not significantly boost employment, because much of today’s manufacturing relies on automation.
Reduce the Trade Deficit The United States has had a persistent trade deficit since the late 1970s. In 2024, that deficit reached a record $1.2 trillion, highlighting the country’s reliance on foreign products. Imports totaled nearly $3.3 trillion, while U.S. exports totaled about $2.1 trillion. Officials say that decades-long trade imbalances are unsustainable, citing potential vulnerabilities in the broader economy, threats to national security, and weakening competitiveness among domestic companies in the global economy. Policymakers believe that tariffs could help reverse the trend by reducing the United States’ dependence on foreign goods.
Reduce National Debt The United States may borrow from foreign lenders to fund persistent trade deficits. This exacerbates external debt levels. Additionally, trade deficits are often financed by foreign investment inflows, including the purchase of government bonds, contributing to the growth of the national debt. The U.S. national debt has recently surpassed $36 trillion, exceeding the total size of the nation’s economy. Over the years, economists have discussed the “twin deficit hypothesis,” an economic concept dating back to the 1980s that posits a relationship between trade deficits and fiscal shortfalls. For example, the federal government will borrow more when it posts routine budget deficits. That in turn causes higher interest rates that can strengthen the U.S. dollar, making imports cheaper and exports more expensive. Ultimately, fiscal and trade deficits can reinforce each other.
Offset Cost of Tax Cuts White House trade adviser Peter Navarro recently projected that tariffs would generate about $600 billion to $700 billion per year in revenues—or approximately $6 trillion over a decade. That could help offset the cost and potential fiscal burden of tax cuts. President Donald Trump seeks to make permanent the tax cuts enacted in 2017 during his first term. To support his broader tariff strategy, he has also proposed tax cuts for companies that manufacture in the United States. Additionally, Trump has pledged to eliminate taxes on tips, overtime pay, and Social Security benefits. The Tax Foundation predicts that the extension of tax cuts would cost roughly $4.5 trillion over a decade…
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