President Donald Trump has postponed the implementation of his controversial tariffs, originally set to take effect today, until August 1, 2023. This delay extends uncertainty for businesses and offers America’s trading partners additional time to negotiate trade agreements that could help them avoid these significant levies.
Economists have long criticized tariffs, highlighting their adverse effects on economies that impose them. Research indicates that tariffs can lead to higher prices for consumers and reduced economic growth. While the current tariffs have not yet caused significant inflation or job losses in the United States, experts warn that the economic repercussions could emerge later this year. As Treasury Secretary Scott Bessent puts it, inflation is “the dog that didn’t bark,” suggesting that the anticipated negative effects of tariffs may not be immediately apparent.
Economic Impact of Tariffs
Tariffs function as taxes on imports, typically raising costs for producers and prices for consumers. Approximately half of all US imports consist of intermediate products needed for manufacturing finished goods, according to the Organisation for Economic Co-operation and Development. As Doug Irwin, an economics professor at Dartmouth College, noted, products like Boeing aircraft and automobiles often rely on internationally sourced components. When American companies face higher costs for these imports, they tend to pass those costs on to consumers.
During Trump’s initial term, the introduction of steep tariffs on $283 billion worth of imports in 2018 resulted in price increases for American consumers. A 2019 study co-authored by Mary Amiti at the Federal Reserve Bank of New York found that these tariffs led to a complete pass-through of costs into domestic prices. With tariffs expected to rise again, forecasters, including Federal Reserve Chair Jerome Powell, anticipate further increases in goods inflation.
The economic output of the United States could also suffer due to these levies. A study analyzing data from 151 countries between 1963 and 2014 found that tariffs tend to have persistent adverse effects on a country’s gross domestic product. Hugh Gimber, a global market strategist at J.P. Morgan Asset Management, explained that lower tariffs allow countries to specialize in areas where they have a competitive edge, ultimately leading to increased productivity. Conversely, higher tariffs can disrupt this balance and lower overall economic output.
Job Market Repercussions
The impact of tariffs on employment is another critical concern. Surprisingly, increases in import taxes have been associated with a slight rise in unemployment rates across various countries. Irwin pointed out that studies show job losses often occur in downstream industries that rely on imported goods, which has been the case with the steel tariffs initiated in 2018. A Federal Reserve Board study revealed that rising input costs from these tariffs contributed to job losses in American manufacturing.
Retaliatory tariffs from other countries pose additional risks. When the United States raises tariffs, foreign consumers may face higher prices for American exports, which can dampen demand. Following Trump’s announcement of new tariffs this year, major trading partners quickly responded with their own levies, although a temporary truce was later established with China and the European Union.
While free trade has been credited with benefiting the global economy, it is not without its challenges. Job losses in communities exposed to foreign competition can mirror the effects of technological advancements on the workforce. Gimber emphasized the importance of providing affected workers with retraining opportunities, aligning this need with the concept of a just transition toward a greener economy.
The lessons learned from previous tariff policies highlight the delicate balance between protecting domestic industries and fostering economic growth. As the International Monetary Fund warns, the continuation of high tariffs could ultimately lead to diminished productivity and output in the United States.
As businesses and consumers navigate this extended period of uncertainty, the implications of Trump’s delayed tariffs will likely resonate throughout the economy in the months to come.
