The recent threat of tariffs on imports from trading partners Canada, Mexico and China are back from their hiatus. But believe me, the back and forth over the issue will not be over for long. Canada and China already retaliated and, unfortunately, we will continue to see a contentious, convoluted and complex discussion.

President Donald Trump obviously likes tariffs, but overall, the U.S. administration is not quite clear on its motivations: Do we need tariffs to reduce the trade deficit or to protect industries and jobs in the United States? Do we want to punish violators of human rights and intellectual property or generate government revenue? Do we want to replace income tax or reduce dependency on foreign supply chains? Or are tariffs simply used for tactical purposes to step up the fight against fentanyl?

You can’t have it all, and for the most part, each one of these objectives has negative consequences. Let’s look at a few of these.

Impact on consumers

Each year, about 13 million Americans buy a washing machine. Over the years, consumers enjoyed an increasing number of choices, improved technology and lower prices. We had all these benefits because washing machines have not only been built domestically, but courtesy of free trade and global competition.

When the Trump Administration imposed tariffs in 2018, U.S. consumers bore the price. Tariffs were almost completely passed through into domestic prices, the International Trade Commission concludes in a 2023 report. Consumers were stuck with the bill. 

Overall, Trump’s first-term tariffs cost the average American household $625 per year, the non-partisan Tax Foundation estimates.

There’s no reason to believe that new tariffs would magically produce better outcomes. As investment manager and conservative commentator David Bahnsen recently pointed out in his Capitol Record podcast, Canada, China, and Mexico represent more than 40% of U.S. imports, and anybody who wants to make you believe that there will be no impact on prices at the cash register is either incompetent or lies to you.

Impact on manufacturing

According to Brookings, sectors such as steel or aluminum have somewhat benefitted from the first Trump administration’s protectionist tariffs. However, not too long after the introduction of the tariffs in 2018, U.S. manufacturing across the board reported declines in operating income and gross profits because of higher cost of input factors.

Since then, the U.S. manufacturing sector shrunk. New increases in tariffs could slash gross domestic product and cost hundreds of thousands of American jobs, the Economic Policy Institute pointed out in a 2020 study. Higher prices, lower profits, less investments into the future, reduced competitiveness, lower growth – you get the idea.

Trade deficit could worsen

During the first wave of tariffs in 2018 and 2019, imports of certain manufactured goods indeed declined from Mexico and South Korea, but companies such as Korean electronics giant LG swiftly responded and shifted production to places such as Vietnam and Thailand, resulting in an increase in imports from these countries. 

Global trade is a two-way road. In 2018, China first imposed tariffs on $3.3 billion of U.S. exports, followed by another $50 billion and then an additional $60 billion later in the year. As a result, China’s exports to the U.S. fell by about 52%, but U.S. exports to China also fell by 49.3%.

This time around, China swiftly retaliated with a 15% tariff on coal and liquefied natural gas imports from the U.S., and a 10% tariff on crude oil, agricultural machinery and certain automobiles.

A recent study finds that 43% of all future U.S. exports would be negatively affected by higher U.S. tariffs. The net impact on the trade deficit would at best be a net zero, but it could well be negative.

Revenue generation issues

In 1789, the U.S. passed its Tariff Act at a time when there was no income tax. The U.S. government needed revenue, and it also needed to protect its fledgling industries. Tariffs, essentially a tax on goods from other countries, seemed appropriate in that environment.

Today, however, the United States is a mature economy, built around the idea of free enterprise, and the income tax man cometh each and every year. In 2024, the U.S. collected tariffs amounting to just under $80 billion, representing a meagre 1.6% of all federal revenue. In contrast, income tax contributes about 50% to government coffers.

To replace individual income tax revenue, the U.S. would have to introduce across-the-board tariffs at level that would bring the U.S. economy to a screeching halt. And because lower-income households spend a larger percentage of their income on consumption, higher tariffs would hurt the lower strata of the income distribution the most.

Negative effects in L.A.

The California and Los Angeles economies could be the worst off as trade is usually not a one-way road – fewer imports due to higher tariffs ultimately also result in fewer exports. In 2023, the Los Angeles metropolitan area exported goods worth approximately $61 billion, accounting for a significant portion of California’s total exports.

While the diverse economy of Los Angeles provides some cushion, prolonged tariffs could weaken growth and economic stability.

The ports of Los Angeles and Long Beach are two of the busiest container ports in the U.S. Over 370,000 individuals are employed in the trade sector within the Los Angeles Customs District, and the sector collectively supports many more jobs in other areas.

During the 2018-2019 U.S.-China trade war, the Port of Los Angeles experienced a 16% drop in exports to China. Key industries in California are dependent on successful international sales.

As they say, forecasts are particularly difficult when they concern the future. One thing is for certain, however: Introducing high tariffs would mean an abandonment of free-market ideals. For individuals and businesses, tariffs would result in an increase in prices, limited choices, lower productivity and hampered innovation.

Gerhard Apfelthaler is a professor and the dean of the School of Management at California Lutheran University.