CORRECTION: This article was previously incorrectly published in The Dickinsonian’s News section with misrepresented input from Nicky Tynan, Associate Professor of Economics.
As of April 9, 2025, a 90-day pause on some of the new administration’s tariffs has been set in place. Now that this has occurred, it might be worth assessing what the purpose and ramifications of the initial tariff announcement, along with some of the subsequent steps taken by world leaders.
Fundamental issue with a trade deficit, which is not the reason why tariffs normally exist, is that more is being imported than exported. In theory, tariffs will encourage domestic production. Another potential benefit of tariffs is that the mechanism could serve as political leverage over the USA’s trading partners, although Professor Tynan considers that objective to be outside the area of economics. There are a variety of legitimate grievances aimed at specific bad actors in the international trade arena, although the use of a blanket 10 percent tariffs on all trading partners, regardless of size of deficit, behavior or quantity of human citizens. Specific tariffs can be very effective, such as protecting the EU’s agriculture sector, with its set of stringent health regulations. There are potential benefits, but in practice, there are some significant risks to the administration’s approach.
There is some historical precedent to the implementation of tariffs. The most famous case of the USA trying mass tariffs to encourage domestic production was the Smoot-Hawley Act during the Great Depression. Unfortunately, the act didn’t manage to restore domestic production, and exacerbated the situation. The first Trump administrationimplemented some tariffs on specific goods. However, whilst the steel industry did benefit from those tariffs, prices of goods downstream the supply chain, like domestically produced cars were faced with higher costs.
Markets understand that there are some problems with the current implementation of tariffs. Firstly, global supply chains are so intricate that it will take years to set up local production, especially of intermediate goods. The production of raw materials such as rare earths in particular has not been done on a large scale domestically in years, which underpins the efforts to support domestic manufacturing. Crucial imports that may be needed to construct domestic infrastructure may increase in price as well. A few sectors may greatly benefit, such as the shrimp industry; although, due to the wage-cost differences, prices may go up for consumers.
The implementation of the recent tariffs and the 90-day pause have greatly changed the global economy. The People’s Republic of China has already started implementing 125% tariffs to counter the USA’s rate of 145%. What the future of this series of tariffs will be is not clear.
