He doesn’t aim to restrict US imports--his goal is to boost US exports. How? By imposing prohibitive tariffs, then entering into negotiations. Negotiations about what? About getting European partners to favour American goods over Asian ones, encouraging companies to set up operations in the United States, and above all, persuading foreign financial institutions--including central banks--to invest in long-term US government bonds. In one of his many analytical posts, economist Bruno Colmant puts himself in president Trump’s shoes to assess the situation--always a useful exercise, rather than viewing reality solely through our own lens.

But beyond this understandable perspective, recent studies present a more nuanced--and sometimes contradictory--picture of the effects of tariff hikes. One study of G20 countries found a negative correlation between tariffs and economic growth, suggesting that higher tariffs can hinder economic development. New research by Christopher Meissner, professor of economics at UC Davis, shows that in the late 19th century, tariffs did not boost the productivity of US firms--quite the opposite. His analysis of US customs duties from 1870 to 1909 found that a 10-percentage-point increase in tariffs reduced national productivity by 25% to 35%. And according to Meissner, today’s tariffs are no different.

And today? In a very different globalised economy? The effects of tariffs depend on many factors, including the economic structure of the country, the nature of the industries protected, and the reactions of trading partners. Whilst in some cases tariffs can temporarily protect infant industries, they can also lead to inefficiencies, higher prices for consumers and trade retaliation.

The multiple potential consequences

- Diminished domestic output and productivity: According to a World Bank study that appears to be already old, increases in customs duties are associated with persistent and significant declines in national output and productivity. The study, which covers 151 countries from 1963 to 2014, uses an impulse-response estimation method to establish this correlation. The study suggests that the negative effects on output and productivity are amplified when tariffs are increased during periods of economic expansion. In addition, the industry-level analysis reveals that increases in input tariffs lead to significant declines in sectoral output and productivity. This decline in productivity could be due to the wasteful effects of protectionism, which reduce the efficiency of labour utilisation. Input tariffs also make production less efficient.

- Increased unemployment and inequality: The World Bank study also indicates that tariff increases are followed by an increase in unemployment and inequality. The increase in unemployment could be a consequence of reduced demand for domestic products due to higher prices or retaliatory measures, leading to redundancies. The increase in inequality could result from the rise in unemployment and the fact that protectionism could benefit the rich more than the poor through rent-seeking.

- Real exchange rate appreciation: According to the World Bank, tariffs lead to an appreciation of the real exchange rate. This means that the domestic currency becomes more expensive against other currencies, which can harm the competitiveness of exports by making them more expensive for foreign buyers.

- Insignificant effects on the balance of trade: World Bank researchers found no significant effect of tariffs on the balance of trade. This could be due in part to the appreciation of the real exchange rate, which offsets the direct effects of protection by making imports relatively cheaper and exports more expensive. Trade policy has little effect on the trade balance in the absence of changes in savings or investment.

- Reductions in consumption and investment: The decline in output observed after a tariff increase appears to be driven by decreases in consumption and investment. Although the effect on investment is not always statistically significant in the short term, it may persist in the long term due to the negative impact on the production chain and business confidence. An increase in tariffs can lead to a greater fall in domestic demand than a fall in tariffs leads to an increase, affecting consumption.

- Decline in exports and imports: The imposition of tariffs leads to a fall in both real exports and imports. Tariffs make imports more expensive, reducing their volume, while exchange rate appreciation and retaliatory measures can curb exports.

- Asymmetric effects of tariff increases and cuts: The World Bank study highlights that tariff increases have a greater negative impact on the economy than tariff cuts have a positive impact. Tariff cuts result in much smaller gains in output and productivity than the losses observed when tariffs are increased. This could be linked to intertemporal effects on domestic demand: tariff increases can lead to an increase in purchases before they are implemented, followed by a collapse, while decreases can lead to a slight postponement of purchases in anticipation of lower prices.

- Larger impact on advanced and small economies: The production costs associated with tariff increases appear to be greater for advanced and small economies than for developing and large economies. For advanced economies, the decline in output after a tariff increase is more pronounced than for other economies. Small economies are more likely to experience more adverse effects on unemployment and inequality as a result of tariffs. This could reflect optimal tariff considerations or the fact that richer countries are more open and therefore more exposed to tariff shocks.

- Supply chain disruptions: According to Schroders’ analysts and Richmond Fed researchers, tariffs can significantly disrupt supply chains for both domestic and international companies. The uncertainty created by tariffs can make it difficult to plan long-term sourcing decisions. Companies may seek to diversify their supply chains to avoid the impact of tariffs. However, this reorganisation phenomenon can take time and incur costs.

- Increased costs and inflation for consumers: According to the same two sources, tariffs can make imported products more expensive, resulting in higher consumer prices and inflation. The burden of tariffs is generally passed on to domestic consumers and businesses. The Canadian Chamber of Commerce estimates that tariffs of 25% could cost Canadian households an average of $1,900 a year in reduced GDP.

- Economic uncertainty and impact on spending: Tariffs add a layer of economic uncertainty that can affect business and consumer spending. This uncertainty can dampen investment and consumption because of the difficulty in anticipating future costs and market conditions. More than 30% of companies surveyed in the First Quarter 2025 CFO Survey considered trade and tariffs to be their most pressing business concern.

- Used as a trade and diplomatic policy tool: Tariffs are used by governments to support domestic companies by making local products more competitive and to create diplomatic leverage against other countries. According to Schroders, tariffs are a key tool for protecting US industries and jobs.

- Risk of tariff wars and retaliatory measures: The imposition of tariffs by one country can lead to retaliatory measures by other countries, resulting in tariff wars that can harm international trade and economic growth. Canada, for example, has announced retaliatory measures in response to US tariffs on steel and aluminium. And on Friday evening, China retaliated with 34% tariffs on US products.

- Vulnerability of certain sectors and countries: Sectors heavily dependent on imports or exports to countries imposing tariffs are particularly vulnerable. According to Schroders, countries such as Mexico and Canada--due to their strong economic integration with the US--are particularly exposed in terms of the percentage of their GDP dependent on exports to the US. Taiwan is also highly exposed in terms of stock market earnings from the US.

- Political impact and tariff exclusions: Tariff decisions are inherently political, often made with the aim of addressing domestic concerns or exerting pressure on other nations. Tariff exclusions may also be granted for certain products or countries based on strategic considerations or lobbying pressure.

Consequences for the United States

- According to researchers at the Richmond Fed, tariffs implemented by the United States are likely to increase input costs for US companies. This may reduce their competitiveness and potentially lead to a drop in production.

- These same tariffs can lead to higher consumer prices in the US, say Schroders and Richmond Fed researchers. The pass-through of tariff costs to consumers is generally high.

- Economic uncertainty generated by tariffs could negatively affect US business and consumer spending. This uncertainty may brake investment and consumption decisions.

- While the stated purpose of some tariffs is to protect US industries and employment, according to Schroders, the experience of the 2018–2019 tariffs suggests that the increase in domestic production and employment may be modest, as companies tend to reorganise their supply chains to other countries. The Richmond Fed points out that new tariff measures targeting Canada, Mexico, the EU and autos could lead to widespread disruption in key sectors.

- The US trade deficit is often cited as a concern and indicator of tariff risk, according to Schroders. However, increasing tariffs does not guarantee a reduction in this deficit, as exports may also fall and the exchange rate may appreciate.

- Some US sectors, such as agriculture, have suffered significant damage as a result of retaliatory measures imposed by other countries in response to US tariffs.

Consequences for the rest of the world

- According to Schroders, countries exporting to the US, such as Mexico and Canada, are particularly exposed, as a significant proportion of their GDP depends on these exports. A drop in US demand due to tariffs can have a significant economic impact on these countries.

- Tariffs can disrupt international supply chains for companies around the world. Schroders says that companies in targeted economies could see a reduction in competitiveness or restricted market access.

- A diversion of trade away from the US could create contagion effects for other companies around the world. Companies linked to value chains affected by the US tariffs could also be negatively impacted.

- According to Schroders, if the US dollar strengthens in response to the tariffs, this could brake investor returns in foreign markets, in US dollar terms. This also affects US multinational companies generating international revenues.

- According to the World Bank study, global tariff increases are associated with persistent declines in domestic output and productivity, as well as rising unemployment and inequality in the countries that impose them. These effects can be greater for advanced and smaller economies.

- According to the same study, tariffs generally lead to an appreciation of the real exchange rate, which can harm the competitiveness of a country’s exports on international markets.

This article was originally published in .