We can understand why people think tariffs are a good idea. People who favor higher taxes on imports believe that raising the costs of goods from other countries will help the local economy. The idea goes that in the short term, people and companies will be more likely to buy from American companies that make the same products as foreign ones.

People who favor import taxes also believe that, in the long term, tariffs will cause companies to move production facilities from other countries to the United States. This would mean hiring more Americans.  

But this isn’t what happens. Wealth is created by economic efficiency, by people doing more with less. Workers and economies gain through specialization – doing work that they are best at. Trade drives specialization, efficiency and, thus, economic growth.  

Think of a home garden. Some people will find that being able to grow their own food, whether for their own consumption or to trade with others, is worth the time and effort. Most U.S. residents, though, have concluded otherwise. Sure, you might have a home garden where you grow a few things. But, for most of us, it makes more sense to work a different job – to specialize – and earn money there that you can trade for food. This leaves you richer than growing your own food would do.  

Cities, states and countries, likewise, do better economically when they are more open, not less, to trade and when their policies invite investment. They gain when their customers aren’t limited to those who live nearby. Detroit would never have risen to become a global powerhouse by selling only to Detroiters.  

Countries that are more open to trade – with lower tariffs and more trade agreements – are wealthier and grow faster than those that are not.

Having a free trade environment may be the single most important thing a country can do to gain wealth. Trade is the lifeblood of a market economy (whether trading locally, nationally or internationally). Increasing some tariffs might be prudent during wartime, but even then, tariffs do great harm to domestic population. 

Many people still like the idea of tariffs. That’s why, despite a consensus from economists, tariffs have been put in place or raised by the Bush, Obama, Trump and Biden administrations. All those actions were economically destructive and counterproductive. Fortunately, all except President Joe Biden also signed new trade pacts.  

Some people believe that President Trump is imposing higher tariffs as a negotiating tactic: He threatens or imposes tariffs to get other countries to lower their tariffs on U.S. products. That may be, and, if it leads to lower tariffs across the board, that would be a good thing.  

But that’s an unlikely outcome. There’s a better chance that other countries call our bluff and raise their own tariffs, as Canada is doing. Higher Canadian tariffs on imports from the U.S., driven by higher U.S. tariffs on imports from Canada, would be particularly bad for Michigan because we are closely interconnected with our neighbor. Tariffs may be a true zero-sum game for Michigan as the gains individual businesses reap from tariffs that block foreign competition are offset by whole industries facing foreign tariffs when they sell abroad.  

In a tariff war, there are few winners. A few companies will benefit. Others will try to get carveouts. Some executives will advocate tariffs that benefit their own companies.

The biggest losers will be consumers and smaller companies. Smaller companies use products from overseas, so higher tariffs increase their costs. Those with foreign customers will be harmed. These businesses aren’t politically connected enough to avoid facing the worst effects of tariffs. And consumers must pay higher costs for products. That means cutting back on their spending elsewhere, harming other businesses.  

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