Editor’s Note: The views expressed in this column are solely those of the author.
In the current debate over President Donald Trump’s new tariffs, most economists say that tariffs will raise the price of imported goods, thus having a negative effect on living standards and consumer purchasing power.
An analysis by the nonpartisan Tax Foundation found that if tariffs are imposed, it would amount to an average tax increase of more than $800 per U.S. household in 2025. But to fairly answer the tariff question, economists need to address the following threats and barriers to trade described in the following six questions.
1. What can we do about declining living standards?
Many economists believed the service economy would provide economic growth, good jobs and improved living standards for the middle class. But it just didn’t happen. It is now obvious that the transition to a service economy did not improve living standards for workers with a high school diploma or less.
According to the Economic Policy Institute, the wages of workers without a college degree (about 60% of all workers) rose by only 2% from 1973 to 2006. The smooth transition to the service economy has become a very rough road, creating many losers and angry voters. The price of cheap imported goods was not enough to offset the stagnant wages of most workers.
2. How did the United States ever allow all of its trading partners to impose tariffs and value-added taxes against the U.S. without reciprocation?
One of the big questions about American trade policy that has always puzzled me is: Why do we think it would be good for America to allow all of our trading partners cheap access to all of our industries when they won’t give us the same access to their industries?
A good example is the automobile industry. According to former U.S. Secretary of Commerce Wilbur Ross, the EU charges a 10% tariff on imported American cars, while the U.S. imposes a 2.5% tariff on imported European cars. Europe exports four times as many vehicles to the U.S. or 1.14 million cars annually. The tariffs shown in Table A seem to confirm that tariffs are unfair and lopsided—this is an unsustainable game we cannot win.
If the objective is to create a more level playing field with our trade partners, we need to build reciprocity into our trade. Why not reciprocate tariffs and value-added taxes in order to get our trading partners to reduce theirs?
President Trump told reporters on February 12, 2025, it’s time to be reciprocal. If they charge us, we charge them, he said.
Trump has a solution: raising U.S. tariffs to match what other countries charge the U.S. The only answer to improving living standards is to protect our industries, reshore our products, and level the playing field by reciprocating tariffs of our foreign competitors.
3. How will we address shortages of pharmaceuticals, minerals, metals and components for weapon systems?
We have become dependent on imported pharmaceuticals from China. The shortage of critical medicines ranges from antibiotics and statin drugs to cancer and arthritis drugs. In addition, India and China are increasingly the leading U.S. sources for generic pharmaceuticals, which account for 91% of all prescriptions written in the U.S.
Growing U.S. dependence on China and India for widely used generic pharmaceutical products creates serious risks to national security and patient safety. Imported pharmaceuticals have grown from $113 billion in 2017 to $198 billion in 2022. If China shuts the door on exports of medicines and their key ingredients, U.S. hospitals and clinics will cease to function within months. We are very vulnerable, and this is a security issue.
Mining minerals and metals are the front end of nearly every manufacturing supply chain, from smartphones and computer chips to renewable energy technologies and fighter jets. We now find ourselves reliant on imports for nearly 50 essential minerals and metals—and 100% reliant on imports for 18 of them. China recently imposed export restrictions on some minerals, including germanium, gallium, antimony, and graphite.
The U.S. is currently in an unenviable position where a foreign competitor could cut off our imports and really harm U.S. industries and consumers. We are victims waiting for the hammer to drop. The answer is to either reshore the products or find other sources. But American manufacturers will need incentives to reshore, and one solution that worked in the Chips Act is to offer tax credits for domestic manufacturing.
4. How can we ever help manufacturers increase exports and lower the trade deficit when the value of the dollar is overvalued?
The leading cause of U.S. trade deficits is currency manipulation and misalignment by China and 15 other trading countries. Currency manipulation happens when one of our trading partners buys up U.S. assets such as treasury notes and bonds, making the dollar’s value artificially high. Making the dollar more expensive makes our exports more expensive and the foreign countries’ products cheaper. Currency manipulation is illegal under the rules of the International Monetary Fund and the World Trade Organization, but the rules are never enforced.
If the Trump administration wants to increase exports and reduce the trade deficit, the first step is countervailing duties (CVDs), which are tariffs or taxes on imported goods. CVDs could be in the form of a surcharge, tax, or tariff. It appears that Trump has chosen tariffs as his primary strategy.
5. How can we succeed with an innovation strategy when outsourcing gives our technologies to our competitors?
In 2015, President Obama said America’s future economic growth and international competitiveness depend on our capacity to innovate. His plan, A Strategy for American Innovation, also said innovation-based economic growth will bring higher income, higher quality jobs, and improved health and quality of life to all U.S. citizens and provides a multifaceted, common sense, and sustained approach to ensuring America’s future prosperity.
A strategy of innovation is a noble idea, but it has not produced greater income, quality jobs, and improved health. We are losing new products and technologies through outsourcing and technology transfer agreements.
If new technologies are invented in the U.S. and manufacturing is outsourced to a foreign country, the inventing company eventually loses control of the technology and the market. Our trade in advanced technology products has been running trade deficits since 2002—in 2024, they were at -$298 billion. If we can’t reverse this trend, then a strategy of innovation is a moot point. How do we protect our technologies?
The answer could include tariffs on technology imports, national security restrictions on critical technologies and government reduction of technology transfer agreements. Trump could also assess targeted tariffs on specific product groups, such as advanced technology products, instead of a general tariff on a country.
6. How do we stop competitors from cheating?
China uses currency manipulation, technology transfer, technology theft, dumping and even espionage as trading strategies. China views these strategies as acceptable business practices. Instead of competing, like the U.S. and other industrial nations, they have chosen predatory mercantilism. We are in a cold war with China and the question is: How can we defend ourselves and reduce our dependency?
After renegotiating the United States-Mexico-Canada Agreement (USMCA) agreement, Mexico agreed to limit its steel exports to the U.S. to gain tariff-free access. But they deliberately violated their agreement, and federal data show that steel imports from Mexico surged 472% above agreed-upon levels.
We can’t stop China’s strategy of predatory mercantilism or Mexico’s reneging on its USMCA agreement through negotiation. Talking to them doesn’t get it done, but they do understand the financial implications of tariffs, even if used only as a threat to get them back to the negotiating table.
Time for a new approach
The time has come for fair trade and a new approach to trade and our foreign competitors. Most economists claim that tariffs will lead to slow growth, inflation, and rising consumer prices. However, according to a recent analysis from Coalition for a Prosperous America (CPA) Economist Andrew Rechenberg, backed by multiple economic and U.S. government studies, tariffs have little impact on inflation and price changes. The CPA’s analysis shows that a 10% universal tariff on all U.S. imports would see:
- Household income rise by 5.7%, equivalent to $4,252
- 2.8 million additional jobs
- And a small initial price increase of a half percentage point per year.
The big question is how America can resolve the problems outlined in the above six questions if we don’t use tariffs or tax credits as solutions. Talking and negotiation haven’t worked.
If the goal is to level the playing field, it will take financial leverage. Trump’s reciprocating tariffs are the first step in a developing new industrial policy. To make the policy work for American manufacturing, it should include targeted industries, tariffs and tax credits. It is called productivism, and it prioritizes production over consumption. Essentially, it is a major reorientation toward an economic policy framework rooted in production, work, and localism instead of finance, consumerism, and globalism.
Michael Collins is the author of “Dismantling the American Dream: How Multinational Corporations Undermine American Prosperity.” He can be reached at [email protected] or on mpcmgt.net.