Impact of Trump’s Tariffs on US Economy: A Recent Research Reveals
The Economic Consequences of Donald Trump's Tariffs on Prices and Welfare in the US
Since Donald Trump announced his latest round of trade tariffs, economists, businesses, and everyday consumers have been scrambling to understand what this means for inflation, jobs, and the broader US economy.
A groundbreaking study by leading economists Mary Amiti, Stephen J. Redding, and David E. Weinstein, published in the Journal of Economic Perspectives, provides critical insights into the real-world impact of tariffs—particularly those imposed during Trump's first term in 2018. Their research reveals startling consequences for American consumers, business costs, and economic welfare.
So, what exactly do Trump's tariffs mean for you? Will they make everyday goods more expensive? Do they actually protect American jobs, or will they backfire? And how do they compare to past trade wars?
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Therefore let's break down the research, explain how tariffs function, and explore their long-term economic effects on prices, wages, and overall welfare in the US.
What Are Tariffs and How Do They Work?
Before diving into the impacts, it's crucial to understand what tariffs are and how they function in global trade.
Tariffs are taxes imposed on imported goods. When the US imposes a 25% tariff on, say, Chinese steel, American companies importing that steel must pay an extra 25% on top of the product's original price.
The Three Main Goals Behind Tariffs:
- Protect Domestic Industries – By making foreign goods more expensive, the government hopes to encourage consumers and businesses to "Buy American."
- Generate Government Revenue – Tariffs act as a tax on imports, filling federal coffers.
- Leverage in Trade Negotiations – They can be used as a bargaining chip to pressure other countries into lowering their own trade barriers.
But do they actually work as intended? The research suggests the reality is far more complicated—and costly.
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The 2018 Tariffs: A Real-World Case Study
Trump's 2018 tariffs were among the most aggressive in modern US history. The study by Amiti, Redding, and Weinstein examines six major waves of tariffs imposed that year, covering $283 billion worth of imports—from washing machines and solar panels to steel, aluminum, and Chinese electronics.
| Key Finding | Impact | Economic Consequence |
|---|---|---|
| 1. Tariffs Passed to Consumers | Prices rose 10-30% | Higher costs for businesses and consumers |
| 2. Welfare Losses | $1.4B/month deadweight loss | Reduced economic efficiency |
| 3. Retaliatory Tariffs | $121B in US exports affected | Loss of foreign markets |
| 4. Supply Chain Disruptions | $183B trade redirected/lost | Increased business costs |
| 5. Reduced Product Variety | Fewer imported goods | Limited consumer choices |
1. Tariffs Were Almost Entirely Passed on to US Consumers
One of the most striking findings was that foreign exporters did not lower their prices to offset the tariffs. Instead, American importers and consumers bore the full cost. For example, if a Chinese product cost $100 before a 25% tariff, the price jumped to $125—with no discount from the Chinese supplier. The result is: US businesses either absorbed the higher costs (hurting profits) or passed them on to consumers (raising prices).
The study found that domestic prices for affected goods rose by 10-30%, matching the tariff rates almost exactly.
2. Higher Prices Led to Significant Welfare Losses
The researchers calculated the economic damage using a standard supply-and-demand model.
- Deadweight Loss: By December 2018, the tariffs were costing the US economy $1.4 billion per month in lost efficiency—money that simply vanished due to reduced trade and higher costs.
- Total Annual Cost: Over the year, the cumulative welfare loss reached $8.2 billion.
- Tariff Revenue: The government collected $15.6 billion in tariff revenue, but this was effectively a transfer from consumers to the Treasury—not a net gain for the economy.
In other words, the tariffs made the average American poorer by distorting trade and raising prices.
3. Retaliatory Tariffs Hurt US Exporters
Other countries didn't take Trump's tariffs lying down. China, the EU, Canada, and Mexico retaliated with their own tariffs on $121 billion worth of US exports. These retaliatory tariffs impacted negatively on US Farmers & Manufacturers. American soybeans, whiskey, and automobiles, as a result faced higher taxes abroad, reducing demand. The estimated loss by the end of 2018, for US exporters was $2.4 billion per month in sales.
4. Supply Chains Were Severely Disrupted
The study estimated that $183 billion in trade was redirected or lost due to tariffs. Companies scrambled to find new suppliers, relocate production and absorb higher costs.
This process was both expensive and inefficient, leading to long-term economic damage.
5. Fewer Choices for Consumers
Tariffs didn't just raise prices—they also reduced the variety of products available. The study found that the number of imported goods dropped sharply after tariffs were imposed, meaning Americans had fewer options when shopping.
Could Trump's New Tariffs Have the Same Impact?
The 2018 tariffs offer a clear warning: tariffs are not free. They raise prices, hurt exporters, and create economic inefficiencies. With the latest rounds of Trump's expanded tariffs in 2025, we could see:
| Potential Impact | Sectors Affected | Likely Outcome |
|---|---|---|
| Higher Inflation & Rising Costs | Consumer goods, manufacturing | More expensive electronics, cars, clothing |
| Job Losses in Export Industries | Agriculture, automotive, aerospace | Reduced competitiveness in global markets |
| Stock Market Volatility | Financial markets, retirement accounts | Increased uncertainty for investors |
| Trade Relationship Damage | Global supply chains | Production shifts to other countries |
Conclusion: Are Tariffs Worth the Cost?
The research by Amiti, Redding, and Weinstein paints a clear picture: tariffs act like a tax on consumers, with limited benefits for domestic industries.
While they may protect some jobs in specific sectors (like steel or manufacturing), the broader economic costs—higher prices, lost exports, and reduced efficiency—often outweigh the gains.
If Trump doubles down on tariffs in 2025 as he is doing presently, Americans should brace for: More expensive everyday goods, potential job losses in export-heavy industries and increased economic uncertainty.
The lesson from 2018? Trade wars are not easy to win—and the average American often pays the price.
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Final Thoughts
As the debate over tariffs continues, one thing is clear: policymakers must weigh the short-term political appeal of protectionism (i.e., the MAGA movement) against the long-term economic consequences.
For now, consumers and businesses should prepare for potential price hikes and supply chain disruptions—because if history is any guide, tariffs are far from a free lunch.
I agree.
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