The belief that a broad tariff strategy can substantially alter production and sourcing locations without causing economic disruptions and increased prices is inherently flawed.
First, the mere implementation of tariffs acknowledges the substantial cost difference between domestic and overseas production. The cost differential with China, and in many cases with Mexico, exceed the proposed tariffs. . Furthermore, most US imports are not commodities where price is the sole or even the decisive factor.
Second, US companies created global supply chains, often guided by US trade policy, to benefit from lower costs, greater sourcing flexibility, and access to new markets. Currently, affiliates of US multinational corporations account for forty-five percent of US imports. Consequently, Trump's tariff policy would adversely affect many US companies.
Third, for tariffs to be effective, they must permanently increase the prices of products and materials to eliminate the cost gap and shift the price advantage to domestic producers. Without a permanent and significant change in the price of goods there is no reason for companies to shift production locations or sourcing arrangements.
Fourth, Trump's tariff strategy is closely tied to his fiscal policies. His fiscal plans rely on a significant and ongoing flow of tariff revenue to support the permanent implementation of the 2017 tax law. The problem with this tradeoff (higher product prices for lower taxes) is that extending the tax law does not stimulate economic growth, as it fails to improve cash flow for consumers or businesses, while higher product prices hinder growth.
Fifth, about 25% of US domestic production is exported. It is naive to think that other countries wouldn't retaliate by imposing tariffs on US goods. Ultimately, Trump's tariff policy could have a dual negative impact, increasing domestic product prices and limiting growth opportunities abroad for US companies.
In 2018, Larry Summers, the former US Secretary of the Treasury, described Trump's tariffs on aluminum and steel as "crazy dumb economic policy." The tariff policy of 2025 is even "dumber", as the potential economic and financial effects contradict the policy's original purpose.