Protectionism and Its Price: The Hidden Costs of U.S. Tariff Policy

Three months after Trump assumed office for his second term, he announced a seemingly genius plan to cease a trade deficit in the US, (i.e. to decrease the number of imports into the country), claiming this will ‘strengthen the international economic position of the United States’, as well as protecting American companies from foreign competition.

Simply put, Trump aims for American consumers to buy American products, not imported ones.

What exactly are tariffs?

Tariffs are any taxes imposed onto foreign goods coming into a country. This results in companies increasing the prices of these imported products to account for the increase, leading to consumers becoming less inclined to buy them due to their extortionate prices. At the moment, most countries have been hit with 10% baseline tariffs – including the UK. In addition, China, one of America’s biggest trade partners, has been hit with tariffs up to 145%, although, at the height of the trade war, China was tariffed up to 245%, meaning an imported product that was originally being sold for $10 would end up costing $24.50.

Arguably, such a confrontation with the second-largest economy in the world will surely cause more setbacks than advantages. With China possessing such large martial strength, and the US having alienated its allies, standing alone in such a fight will come with enormous risk.

Moreover, China has responded with tariffs up to 125%. What Trump has not accounted for is the drawbacks that come to America’s economy when countries eventually retaliate. American companies that export to China will now be taxed too, thus facing losses as they succumb to local competitors with lower prices. Most significantly, companies that manufacture in the US itself will also be hit drastically, as any raw materials that are imported from China will also be tariffed. As a result, almost all goods for sale in the US, whether manufactured domestically or abroad, will have an inflated price. This is particularly significant as it will have a detrimental effect on the US economy, which is the opposite of Trump’s intended outcome.

Considering necessity goods (items purchased regardless of changes to consumers’ income), approximately 15% of products in American grocery stores are imported, especially fresh produce in the off-season. Crucially, low-income families will be the most impacted and it is likely that they will consume less nutrient rich food in place of cheaper, ultra-processed food. What has not been considered during the implementation of these protectionist policies is that livelihoods of people’s daily lives will be affected – in more ways than just one.

How is the UK economy affected?

Currently, the US is the largest buyer of UK goods and in 2023, it received 15.3% of UK exports. Seeing as demand for UK goods will likely fall in the US following the tariffs, UK companies will be forced to find new customers or may face downsizing in order to reduce operating costs. Notably, the automobile company Jaguar has paused all exports to the US, following a 25% tax on any foreign cars being sold in the US. Its factory employs over 9,000 people in Solihull and if they are dismissed, this could cause knock-on effects elsewhere, leading local businesses to lose customers. The UK needs to move fast to apply their own retaliatory tariffs onto American imports into the country, or risk detriments to their economy.

In practice, it is unlikely that Trump’s aims for the American economy will materialise with the implementation of these tariffs - at least not without significant long-term side-effects, potentially leading into a recession as early as this summer. We are already seeing the US’s GDP in a decline, especially after a sustained period of increase. Whilst naturally many parts of the global economy will be advantaged, there will be impacts on the US and on our own economy that may lead to downturns as well as social repercussions.

Trisha Sharma