A trade war is much like a nuclear war, in that the only way to win it is to not get into it in the first place. And yet, here we are, at this politically strange moment, where Republicans—historically champions of free trade and opponents of taxation—have now rallied around a president who imposed the largest tax on free trade in American history. And not only are we defending it, we’re calling it strategy.
Democrats, for their part, have finally found in tariffs a tax they don’t like, and a corporate tax at that!
This inversion of roles deserves closer scrutiny. The media’s narrative that “tariffs cause inflation” is simplistic and lazy. But the Republican rebuttal—somewhere between “well, other countries started it” and “America first”—isn’t much better.
Tariffs Are Just Taxes—Let’s Call Them What They Are
A tariff is simply a tax on imported goods. We can dress it up in talk about “fair trade” or “protecting domestic jobs,” but fundamentally, it’s a tax on economic activity. And like any tax, it distorts market behavior.
Basic economics tells us:
- You get more of what you subsidize.
- You get less of what you tax.
So when you tax imports, you reduce trade. You reduce economic activity. The additional cost initially means higher prices, less consumer choice, and lower overall economic efficiency.
Even nonpartisan economists agree: tariffs are blunt instruments that often hurt consumers more than they help producers.
Tariffs Raise Prices Initially—But May Lead to Deflation Later
In the short term, tariffs lead to inflation by making imported goods more expensive. But in the medium and long term, they can have a deflationary effect, because higher prices reduce consumer spending, which slows down trade and overall economic activity.
When Americans spend less, companies sell less, and wages stagnate. That doesn’t lead to higher savings—it leads to a weaker economy. So the idea that tariffs will result in a savings-driven recovery is largely a myth.
And I’m not saying deflation is good—it isn’t. But it’s the more likely outcome if trade slows and economic activity contracts. We may already be seeing the early warning signs. Just look at the stock market’s recent performance. Deflation isn’t theoretical—it’s happening. What remains is whether it will be generalized across the entire economy (which I suggest is the most likely), or limited to specific sectors.
When Tariffs Make Sense (Rarely)
Despite their downsides, some tariffs can make sense in narrow, strategic contexts. For example:
- In the 1980s, President Reagan imposed temporary tariffs on Japanese motorcycles to protect Harley-Davidson from a sudden overwhelming flood of competition.
- More recently, President Biden levied a 100% tariff on Chinese electric vehicles to give U.S. auto manufacturers a fighting chance against a subsidized and IP-stealing competitor.
These tariffs weren’t about free markets—they were about national security and economic stability. Used judiciously, this kind of intervention can be justified. But they should always be temporary and targeted.
Trump Got the Strategy—But Not the Execution
If the point of a tariff is to force other nations to reduce theirs, that strategy needs to be tested in small doses—not applied across the board. Trump imposed tariffs on virtually the entire globe at once, from allies to adversaries, with no clear plan or endgame.
Worse, he missed a golden opportunity to explain what the resulting revenue would fund. Tariffs do raise money—but that money vanished into the general fund without so much as a public explanation. Imagine if Trump had said, “This will fund 100,000 new engineers, rebuild our roads, or give every high school graduate two years of tuition-free college.” Or better yet: “All the money we raise from these tariffs will be sent back to the American people in equal amounts.” Everyone likes money! The political landscape might have shifted in his favor.
The Smarter “Tariff” Strategy: Lower Business Taxes
If the goal is to make American businesses more competitive, here’s a better solution: lower corporate taxes.
When U.S. corporate tax rates are lower than those of our trading partners, their companies face a relative disadvantage—effectively a reverse tariff. But unlike actual tariffs, lower taxes don’t raise consumer prices or restrict trade. They encourage investment, entrepreneurship, and job growth.
This is a cleaner, smarter, and more market-friendly way to support American industry and encourage free trade, without hurting American consumers.
What Comes Next: A Global Currency War?
Tariffs slow trade. Slower trade reduces growth. Reduced growth leads to deflationary pressure. Central banks will almost certainly respond with monetary easing—lower interest rates, asset purchases, or direct stimulus.
That weakens the U.S. dollar, making exports cheaper, which in turn offsets the effects of reciprocal foreign tariffs. But this can spiral: other countries respond by weakening their own currencies, and the result is a full-blown monetary war layered on top of the trade war.
This is more than theoretical—it’s already begun in some markets. The IMF has issued warnings about this exact scenario. The consequences could ripple far beyond the trade policy debate.
Conclusion: A Blunt Tool with Blunt Consequences
Tariffs are a blunt instrument. They should be used sparingly, strategically, and temporarily. They can make sense in moments of national urgency or unfair foreign competition, but they’re not a long-term economic solution.
There are better ways to achieve what tariffs promise. Cutting corporate tax rates. Investing in workforce development. Incentivizing domestic manufacturing. These ideas don’t punish consumers or invite retaliation from trading partners.
We need to stop pretending that tariffs are “America First” when they often wind up hurting Americans most. If we’re serious about economic growth, we need smarter policies—not bigger taxes by another name.
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