Policy Issues / Healthy Communities

How Tariffs Can Help Boost American Production

By functionally making foreign labor more expensive, a universal tariff can protect American industries with good-paying jobs.

By raising import prices, a tariff increases the competitiveness of American producers. The potential for increased profits for domestic producers protected by the tariff prompts new investment in production, which can create new jobs. Existing firms may expand and new firms may be created, increasing domestic competition and innovation.

Both theory and the empirical record show the benefits of free trade—whether describing bilateral trade between two nations or the opening of the US domestic market to global market forces—are necessarily unequally distributed. New efficiencies create profits for some businesses and sectors, while new foreign competition disrupts long-established community employers. The aftermath of NAFTA and the so-called “China Shock” in the American Rust Belt illustrate this dynamic, in which some parts of the country captured new money flows while others lost good jobs. This has had enormous consequences for American civic life.

Globalization Hasn’t Been Cheap

America’s participation in multilateral free trade agreements, as part of globalization, especially passes measurable costs along to Americans, primarily by depressing wages. The US, which is relatively abundant in professionals compared to less-developed trade partners and thus, relatively speaking, scarce in low-skill or uncredentialed labor, experiences particular declines in working-class wages the more it trades with less-developed countries.

Free trade is not free, especially in a world in which most other nations subsidize their industries and engage in protectionist practices. A universal tariff, like the 10 percent one proposed by former U.S. Trade Representative Robert Lighthizer (for more, see the first one-pager in this series here), would help protect America’s internal free market from interference by unfree markets around the world.1 

In simple terms, by functionally making foreign labor more expensive, a universal tariff protects those industries where American labor costs are marginally higher than that of foreign competitors. In particular, it would make capital intensive domestic industries more competitive or newly competitive, thus reshoring some.

It’s Time to Reinvest in Americans

Analysis by the Coalition for a Prosperous America (CPA) of the 10 percent universal basic tariff proposal found that the American computers and electronics industries would have the most to gain from an effective tariff increase.2 After all, the principle of comparative advantage—the driving force behind trade in general—doesn’t say a producer country necessarily makes a better product than Americans can, only that it can make a substitute product relatively more cheaply. The microchip was invented in America, but “free” trade let its manufacture go to East Asia. That was a choice that can be unmade.

CPA’s analysis concludes such a tariff would increase GDP by 3.61 percent, estimating that domestic manufacturing output would increase by $646.6 billion. Household incomes would see a raise of $7,779 in 2022 dollars, or 10.43 percent. Additionally, they estimated employment to increase by 2.1 percent, which at current employment levels means 3.3 million new jobs. While industry-specific price increases are a one-time effect of a tariff, the protection the tariff provides would allow U.S. firms to increase investment and production for years.

Free trade doctrine makes a claim about global production efficiency and consequent decreases in consumer prices without regard for the actual behavior of foreign countries or the security of the American middle class. Additionally, it wrongly assumes that global trade is perpetually sustainable—demand curves slope downward as consumers are satiated—and that short-term efficiencies lead to long-term growth. For the sake of the American worker, it is time to set those doctrines aside and consider what the tariff can do for this country. 

End Notes

  1. 1. CRA Staff, “One Pager: What is a Tariff For?” Center for Renewing America, June 13, 2024, https://americarenewing.com/issues/one-pager-what-is-a-tariff-for/. ↩︎
  2. 2. Jeff Ferry and Andrew Heritage, “Model Shows That Universal 10% Tariff Would Improve Incomes, Output And Jobs (Updated),” Coalition for a Prosperous America, September 18, 2023, https://prosperousamerica.org/model-shows-that-universal-10-tariff-would-improve-incomes-output-and-jobs/. ↩︎