Are Donald Trump’s tariffs justified?

During his second term, President Donald J Trump enacted a series of steep tariffs affecting hundreds of billions of dollars worth of goods being imported into the American economy. Doing this, he sparked a global debate on whether tariffs really were beneficial, a debate highlighting the complex role of tariffs in the modern economy. 

So what exactly is a tariff?

Simply put, a tariff is a tax on an imported good. This raises the price of imports, thereby making domestic goods relatively cheaper. This is because import prices reduce the quantity of imports, making domestic goods relatively cheaper. 

We can observe the way this acts on a demand-supply diagram:

Where 

P_w  is the world price

P_w + t is the world price with the tariff

The highlighted yellow box is tax revenue. 

Notice that without the tariff, domestic consumption (consumption by the people in that country, could be of domestic or imported goods) occurs at Q4 and domestic production (production by domestic firms) occurs at Q1.

 However, with the tariff, production increases from Q1 to Q2, meaning that domestic producers produce more because the cost of production is lower; and consumption decreases from Q4 to Q3, meaning that domestic consumers consume less overall, because the tariff raises the market tax. 

Are tariffs good or bad?  

Tariffs have their benefits, especially in economies of developing countries, whereby they can protect newer domestic firms. This is because prices are relatively cheaper, so local firms can gain more customers and market power. Furthermore, they add to the government’s tax revenue and thereby funding for essential public services such as healthcare and education. Finally, tariffs would lead to a lower reliance on imports, which has long term benefits such as shorter local supply lines that would shield an economy from supply chain disruptions or geopolitical influence.

However, they have their own disadvantages as well, the biggest one being a lack of competition. A lack of competition in a market would mean that a firm could become inefficient, less innovated, and less motivated, and thereby unable to compete in the global market. With a drop in exports, there would be reduced consumer choice, and these together would force consumers to pay higher prices for lower quality goods. Growth could stagnate, and monopolised or heavily protected local firms would lack the financial incentive to grow. Finally, countries may not like the tariffs being put on their goods. This is because it makes the imported products from their firms more expensive in international markets, making them less competitive and giving them a lower sales revenue, lowering the country’s overall GDP. 

What is it that the American Government is doing? 

Donald Trump imposed large, broad scale tariffs on foreign imports. He used the IEEPA (International Emergency Economic Powers Act) to bypass congress to impose heavy duties on Mexico and Canada, and tariffs on China escalated up to 125%. He also eliminated the de minimis exception, which was an exemption of tariffs on goods valued at $800 and less. This was done for three main reasons:

1.        To eliminate the USA’s long running trade deficit. Trump claimed that foreign countries had taken advantage of America, and viewed the larger volume of imports than exports to be a economic loss. His goal was to suppress the  total volume of imports of the American people, and reduce that deficit.

2.        To reshore the manufacturing industry and encourage foreign investment. His America-first agenda aimed to encourage manufacturing in America, for increased self-reliance. If it is too expensive for a corporation to ship goods into America, they will need to build a factory there itself to legally avoid the tariffs. This would have both increased the GDP and created opportunities for employment of American labourers.

3.        Geopolitical leverage. Even threats of levying such large tariffs could force trading partners of the US to sit at the negotiating table and agree to specialised trade deals that favour the US economy and agriculture. 

Was it truly beneficial?

Although it is still heavily debated upon how beneficial the imposition of such heavy tariffs was, it did have its own merits. For example, according to the Tax Foundation, there was an increase in revenue by about $79 billion, with 2025 tariffs generating about $214.7 billion in revenue above the historical average. Heavy duties on goods such as aluminium were made to protect American metal producers against cheap foreign competition. 

However, a study done by the Kiel Institute of the World revealed that the American consumers were the ones who bore 96% of the tariff, with foreigners absorbing only the remaining 4%. Furthermore, prices for Personal Consumption Expenditure (PCE), which is a primary measure of US inflation that tracks changes in prices of goods and services purchased by consumers, core goods and durables rose by 1.5% in early 2025, and a 0.7% increase in overall inflation, making general imported goods ~6% more expensive. Also, when foreign nations retaliated with reciprocal tariffs, American exporters suffered. For instance, the 50% tariff that US levied on India resulted in an extremely large drop in shipments from India, harming the bilateral trade volumes.

Ultimately, whether Donald Trump’s tariffs were justified depends on the priorities used to evaluate them. If the goal was to increase government revenue, encourage domestic manufacturing and gain leverage in negotiations, the tariffs did achieve some measurable effect, albeit with unignorable costs, like higher prices for consumers, retaliatory tariffs from trading partners and disruptions to international trade.